While printing 74K on Non-Farm Payroll report (NFP) today in
the U.S. gives a temporary momentum boost to flagging spirits in
emerging markets, it is not worth discussing other than in
the context of what is moving markets today.
In the bigger picture emerging markets needs a stronger U.S.
economy and thus labor force to pullout of its growth
doldrums. Emerging markets' needs Europe not to continue to
discuss extraordinary stimulus measures if needed (as Draghi did
Emerging markets needs to Japan to snap out of its 2 decade
snooze with more follow through from their ambitious Abenomics
game plan. Emerging Market is not suffering under credit related
problems and largely government finances are intact.
The fact is playing emerging markets as an asset class is done
and was probably done after the crisis but we continue to try and
believe that one tide will life or sink all boats.
Neither side of that premise hold true for emerging
markets. While we spend a lot of time showing spreads
between iShares MSCI Emerging Markets ETF (
) and S&P 500 (
) to gauge overall sentiment shift to emerging markets, using the
EEM as your conduit for investing in the asset class is
Country calls will be crucial in 2014 as will the ever
important sector call. As we have discussed many times in
the last few weeks, playing China can be fruitful and has been
fruitful if you are playing the exposure to their growth.
) will be more resilient to a slowdown in growth in emerging
markets than people thing.
) who was recently upgraded to BBB+ last month has overcome
economic stagnation with real restructuring of energy and even
) despite the strength of its currency is well positioned for the
industrial expansion that is coming down the pipe.
) will have the strongest GDP growth in Latin America, etc.
There is a trade to be made in oversold emerging markets as
defined by the EEM. Today's weaker news is good news
approach is not a bad trend to follow for a couple days with
emerging markets' YTD malaise.
But tomorrow begin your journey to pick countries and sectors
with an emphasis on diversification and macro strength in the
countries you invest.