That is the statement I heard from a wise man said
to me today. So simple, yet the torrent of sentimental rain
upon emerging markets for the last few weeks has seemed as if
casual observers are throwing in the towel.
And that folks is exactly what they are, casual observers. You
don't throw away markets that represent 80% of the worlds
population for obvious reasons, but you also don't suddenly jump
out when the markets are at their lows.
I've seen many folks have their sprit broken by the relentless
selling of EM that follows a long slow burn.
I have worked with guys who have simply quit. I say
quitting is not only a sad thing to do, but it doesn't make sense
in the context of making a blanket assessment of 18
Anyone who has any experience
in EM (just a little) will tell you the current cycle is not
unlike 10 others they have seen in the last 5 years and far from
the pain we dealt with in '94, '97-98, and '07-'08.
That is what is does when the global macro is queasy,
especially when interest rates are feared heading higher, or
global growth is in question. We have both themes as a
The fall in the MSCI EM (
) of around 13% since October is actually one of the smallest
drawdowns of the last 5 years when weighing volatility.
It also has transpired over 4 months, which mean the velocity
(except for last week) has been relatively light (See chart).
I was managing a long/short EM equity fund during that time
where the objective was to lower volatility, and large drawdowns
were simply not tolerated. While the last couple weeks have
been intense for EM, they are nothing like August and September
of 2011 for example.
The fact that all of this has come during a period where the
Fed is unwinding the greatest financial experiment of all time
and while global growth is far from certain leads me to conclude
that the reaction of markets has been about right and maybe even
somewhat calmer than it could have been.
This statement comes despite the fact that the fund flows
continue to send a message of panic overreaction by
While I believe you can trade this current small bounce in the
EEM (discussed last night on FM how I sold covered calls at $40),
the level of support we are hovering near on the EEM goes back to
Feb. 2010, only being busted by the US downgrade and Euro default
prospects of the Aug 2011.
There is nothing going on in Turkey, Brazil, Argentina,
Venezuela, and Thailand combined that can take us to 2011
sentiment right now, and fundamentals are in a VERY upgraded
position from that point.
Look, I'm flattered by the attention the asset class is
getting right now. It's rare we have been the global focus
"we" are now. I also get a little frustrated with people
talking about the doom and gloom when in fact all that is being
discussed has been playing out for the last 18 months (see ZAR,
BRL, current account issues, Turkey politics etc).
And for the record, Argentina and Venezuela (with all due
respect and there is tons of it for their culture, people and
potential of their economies) have been the slowest economic
train wrecks in history.
Please don't bring up Argentina and Venezuela when discussing
why US growth is stagnating and labor market choppiness will
derail the economy.
Take this opportunity to look at the extreme positioning and
make "safe neighborhood" calls on a country level with a stomach
for potential volatility and the wisdom of reviewing earnings
Buy some of the great companies in EM who have proven through
crises after crises they are street fighters and survivors with
world class franchises.