Podcast Summary: Exchanges by Goldman Sachs

Episode: Emerging Markets: Stirred, But Not Yet Shaken
Date: March 18, 2026
Host: Alison Nathan
Guest: Kamaksha Trivedi, Chief Foreign Exchange and Emerging Market Strategist, Goldman Sachs Research

Main Theme

This episode explores the impact of recent market developments—particularly the energy price spike following the Iran conflict—on global and emerging markets. Alison Nathan and Kamaksha Trivedi discuss how markets are digesting these developments, why traditional hedges have not performed as expected, and the outlook for emerging markets amid continued uncertainty.

Key Discussion Points & Insights

1. Market Reactions to the Middle East Conflict

• Inflation vs. Growth Shock
  • Markets have primarily priced in an inflation shock due to spiking energy prices, reflected in the upward movement of interest rate curves. Expected rate cuts in the US and UK have been pulled back, indicating anticipated higher inflation.

    “The market is pricing in a higher inflation shock in response to the spike in energy prices that you've seen as a result of the conflict.” – Kamaksha Trivedi (01:00)

  • There’s not yet a clear pricing of a growth shock. If the conflict prolongs, growth damage could become a more immediate concern.
• Failed Portfolio Hedges
  • Traditional hedges like long duration, gold, and the Swiss franc haven’t worked as expected during this event, leading to “a painful period for portfolios.” (01:40)

2. The Breakdown of Hedges

• Why Hedges Didn’t Work (02:37)
  • Overcrowded positions made markets vulnerable to sudden reversals.
  • Inflation shock impacted interest rates, counteracting the usual impact of hedges like long duration.
  • Possible central bank interventions (like with the Swiss franc) also played a role.

    “Positioning is a big part of it… in very concentrated small markets like gold … [and] the central bank can intervene to stop the currency from appreciating.” – Kamaksha Trivedi (02:40)

3. The Market’s Sequencing of Risk

• The current focus is on quantifying the inflation shock. Growth impacts will be priced in only if the conflict persists and leads to physical shortages (03:36).

  “I think once they can put some limits around the size of that inflation shock, I think typically you move on to pricing… what the growth damage is going to be.” – Kamaksha Trivedi (03:55)

4. US Dollar Strength and Its Role

• The dollar’s outperformance is attributed to:
  • The nature of the risk event (global, non-US origin)
  • The US’s favorable terms of trade due to high energy prices
  • Initial risk-off positioning unwinds favored the dollar (04:44)
  • Over time, energy exporter vs. importer status becomes the key currency differentiator

    “A global risk off shock and the US being on the right side of that divide, I think both of them lend itself to a stronger dollar.”
    – Kamaksha Trivedi (05:00)

5. Effect on Emerging Markets (EM)

• Pre-conflict, EM assets (especially equities) had strong momentum, but this was interrupted by the crisis (06:32).
  • The most significant declines came in places that had performed best earlier, e.g., Korea.
  • Many EM countries are energy importers and thus directly hit by high prices.
• Narrative Unchanged If Conflict Is Brief
  • If the market’s assumption of a short conflict holds, the underlying positive narrative for EM remains intact.

    “If [the conflict] lasts a lot longer, I think it puts into question some of those growth estimates…” – Kamaksha Trivedi (07:45)

• Korea’s Example
  • Korea’s outperforming narrative is linked to the AI and semiconductor supply chain, which is expected to resume strong earnings growth after the disruption (08:23).

    “Korea is the poster child… The AI theme. It's the fact that Korea, Taiwan... supply the all important chips, semiconductors into this kind of AI supply chain.”
    – Kamaksha Trivedi (08:38)

6. Portfolio Construction within Emerging Markets

• Balance digital/AI exposures with commodity exporters.
• South Africa and Brazil (energy exporters) also expected to recover as markets settle (09:50).

7. Long-Term Structural Drivers Supporting EMs

• Three Structural Drivers:
  1. Dollar Valuation:
     • The dollar is currently overvalued; expected to weaken over time, aiding EM performance.

       “When you think about the dollar in a longer-term perspective, it's still an overvalued asset. And we think that valuation premium… is going to erode...” (10:30)

  2. EM Macroeconomic Resilience:
     • Growth is healthy, inflation moderated since the pandemic, and fiscal balances are stronger.
     • Modernized policy frameworks have made EMs more resilient.

       “It's a less racy asset class, it's a more reliable asset class.” – Kamaksha Trivedi (11:30)

  3. Under-allocation by Global Investors:
     • Global investors remain underweight EM assets even after the strong rally. The trend towards global diversification should support EM allocations further.

       “The broader trend towards diversification, towards allocating the marginal dollar into emerging markets… is going to continue and extend further.”
       – Kamaksha Trivedi (12:18)

8. Resilience of Emerging Markets in Current Crisis

• While EMs will feel the shock, their starting position is healthier than past crises, making them better prepared to weather volatility (12:49).

  “The starting point for a lot of these countries… is healthier than it used to be and I think that is going to stand them in good stead.”
  – Kamaksha Trivedi (13:00)

Notable Quotes & Memorable Moments

• On why hedges failed:
  “People got comfortable with long gold positions, those haven't really performed. The Swiss franc was another popular geopolitical hedge, but that didn't really perform.” – Kamaksha Trivedi (01:45)

• On market rationality:
  “At some level it's pretty rational… Markets are trying to get a sense of the full extent of the energy price increase… price that inflation shock.” – Kamaksha Trivedi (03:41)

• On AI and EM earnings:
  “It's the AI theme. It's the fact that Korea, Taiwan… supply the all-important chips, semiconductors into this kind of AI supply chain.” – Kamaksha Trivedi (08:38)

• On EM macro resiliency:
  “Emerging market assets are much more resilient than I think people's memories of them suggest.” – Kamaksha Trivedi (11:28)

Timestamps for Important Segments

• 01:00 – Market reaction: inflation shock dominates pricing
• 02:37 – Reasons why traditional hedges have underperformed
• 03:36 – Sequencing of risk: inflation shock precedes growth shock
• 04:44 – The dollar’s role during the crisis
• 06:32 – Impact of conflict on emerging markets and positioning unwind
• 08:23 – Structural support for Korea and other EMs via AI/semiconductors
• 10:28 – Three structural drivers supporting emerging markets
• 12:49 – Resilience of EMs and improved starting positions compared to history

Closing Thoughts

Kamaksha Trivedi emphasizes that, despite the current volatility and setbacks, the underlying structural and macroeconomic strength of emerging markets remains intact, provided the recent conflict does not transform into a protracted crisis. Short-term pain reflects both an unwind of prior gains and the challenge of an inflation shock, but the medium- to long-term outlook for EMs is still supported by strong earnings growth, improving fundamentals, and investors’ increased global diversification.