Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Goldman Sachs analysts and emerging-market investors haven't really been on the same page this year.

On Monday, Bloomberg News reported that Goldman strategist Kamakshya Trivedi was calling for investors to take profits and sell Asian currencies after their best monthly rally in seven years. The same day, a Citigroup investor survey showed that portfolio managers are more bullish about emerging markets. ``Compared to our last survey from November, many see FX and rates as a more favored asset class, likely aided by the Fed," Citi analysts wrote.

The jury is still out on who is making the right call, but the latest example is evidence of a deep difference in world views. The argument behind the U.S. investment bank's call looks reasonable, but may be rendered ineffective as Janet Yellen, Mario Draghi, Haruhiko Kuroda and Zhou Xiaochuan unite to flood the world with credit.

Curiously, when investors in Citi's November survey were getting more cautious toward emerging-market local currency and government bonds, Goldman Sachs was becoming bullish about their currencies. Recent history doesn't favor the U.S. bank, even if its arguments are sound.

Against the Tide
Goldman Sachs was getting bullish on emerging market currencies way before they hit the bottom
Source: Bloomberg

As Trivedi points out, Asian exports are yet to take off. Technical indicators were also suggesting on Monday that the currencies represented in the Bloomberg-JPMorgan Asia Dollar index were overbought. The index was trading at more than one standard deviation above the 21-day moving average, also known as a Bollinger band. Technical analysts say the index is still trending up, though, and after a correction earlier this week, it could be set for another bounce.

Still Trending Up
The Asian Dollar Index is showing signs it could see a bounce
Source: Bloomberg

Analysts at the Institute of International Finance, the bank-backed think tank, noted on April 1 that the first-quarter global rebound in equities ``has left investors wondering whether the upturn can be sustained -- especially as fundamentals have shown little if any improvement." However, if the Fed continues to lean toward caution on U.S. rates, ``improved sentiment towards emerging markets may persist as investors continue to move to a more neutral stance from heavily underweight positions,'' they said.

The thinking can be extended to Asian currencies, and that may be the trouble with Goldman's position. Cheap money fueled by a dovish stance in all major central banks and a slightly more positive feeling toward the Chinese economy would argue for adding exposure to emerging-market currencies.

In Goldman's defense, it's difficult to offer fundamental arguments when the market is being driven by sentiment. That tends to be the case with emerging-market assets, which are heavily influenced by portfolio flows. If people are bullish about the asset class, it doesn't matter whether the investment case makes sense or not. When the four biggest central banks in the world are pumping cheap credit, it's hard to be risk-averse.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Christopher Langner in Singapore at

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