Emerging market assets still face multiple sources of risk

That is because the negative global growth impulse will offset any easing in financial conditions.

This is what happens when lower rates are sparked by weaker data and concern about the durability of the US recovery, analysts at Goldman Sachs said in a research note sent to clients.

To take note of, whereas emerging market debt tends to rise when global activity slows, EM FX and equities tend to weaken while the impact on EM credits is more ambiguous.

Given that US debt markets are already pricing in just four rate hikes by the end of 2017 – significantly less than the FOMC itself – economic growth Stateside would need to slow more meaningfully for US rates to deliver another dovish impulse.

“Ultimately a more sustainable constructive outlook for the broader EM asset complex, including EM FX, will require an improvement in EM fundamentals – above or beyond any shifts in US rates,” Goldman concluded.

Unfortunately, progress in correcting external and internal imbalances has further to run in some EMs (such as Brazil, Turkey and South Africa), a cyclical upswing in China is likely to be short-lived, there are still downside risks to oil prices and further meaningful falls in metals prices are likely in coming months, the analysts explained.

“Therefore, while acknowledging the possibility of near-term relief in EM assets, and in particular in EM rates, this underscores our on-going cautious view.”