Episode summary
A New Way to Trade Emerging Markets
The Markets
· · 10 min · Hosts: Chris Hussey · Guests: Stratford Dennis
Summary
Emerging market equities have rallied sharply in 2026 because of two main supports, according to Stratford Dennis: strong inflows and better fundamentals. He said about $45 billion has already flowed into global EM year-to-date, surpassing all of last year, while earnings have also been firm across the asset class.
Dennis argued that China is lagging because the move there has been more about multiple expansion than earnings growth, while current flows are favoring Korea, Taiwan and Japan instead. He also said China’s economy remains bifurcated, with exporters holding up but domestic-demand companies weaker, and that the weaker dollar has not yet been a China-specific tailwind.
Outside China, Dennis remained constructive on Brazil. He pointed to expected 250 basis points of cuts, continued commodity exposure and possible election upside, while noting the market is less cheap than before and not as heavily underowned. Even after the big rally, he still wants EM exposure, but he prefers call spreads and call ratios because upside options are now expensive and the move may continue at a slower pace.
Key takeaways
- Dennis said global EM has already seen about $45 billion of inflows year-to-date, more than all of last year, and he sees that as a major driver of the rally.
- Dennis said China is lagging because earnings growth has not arrived yet, while flows have instead favored Korea, Taiwan and Japan.
- Dennis still likes Brazil, citing expected 250 basis points of rate cuts, commodity exposure and possible election upside.
- Dennis said a weaker dollar generally helps EM ex-China and commodity-linked markets, but the dollar tailwind is not really a China story.
- Dennis prefers call spreads and call ratios in MSCI EM or Brazil because upside calls are expensive after the rally, creating what he sees as attractive risk/reward.
Notable quotes
“Year-to-date we've seen about $45 billion of inflows into global EM, which surpasses last year, a full year, already”
“It's very simple. Flows and fundamentals”
“I think you're right. First of all, you're just not seeing the earnings growth”
“We think there are going to be 250 basis points of cuts, you know, starting very soon”
“I think the way that I like to do it is through call spreads and call ratios”
How the episode opens
This is The Markets. I'm Chris Hussey and today is Thursday, February 26th. And I'm here on the Goldman Sachs trading floor with Stratford Dennis, who is head of Emerging Markets Equities Trading within Global Banking & Markets.
Strat, thanks so much for joining us again. Thanks for having me on. I always look forward to doing this.
Yeah, well, Strat, you know 2026 is already the year of emerging markets when we kick it off with you and two months later we've got you back. Fantastic. It's been a nice run for emerging markets.
What's going on? Why is it working so well? It's very simple.
Flows and fundamentals. Year-to-date we've seen about $45 billion of inflows into global EM, which surpasses last year, a full year, already. And if you think about last year, obviously we had a strong year.
And from an inflow perspective, that was stronger than what we've seen in the past, you know, few years. So, to already surpass that within, you know, two months of the year, it says how robust the flows are. And then fundamentals.
From an earnings perspective, things have been strong. Fundamentally, we're seeing, you know, stronger emerging markets globally. And so, you couple the two and we see the strength that we've seen year-to-date.
Let's peel back the onion a little bit because what's interesting too in this, all of this has happened with China not actually being the driver. What's going on with China? Why is it lagging?
Yeah. I think you're right. First of all, you're just not seeing the earnings growth.
So, you look at how China performed well last year. All of that was due to multiple expansion. So, really, the market kind of pre-traded things.
And now it's waiting to see, you know, when are the earnings going to get there?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- emerging market equities
- market rally drivers
- emerging market trading opportunities
- goldman trading desk
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “A New Way to Trade Emerging Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Markets, this episode and its artwork belong to Goldman Sachs. Octagon is not affiliated with the show; this page is an independent summary.
