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Some thoughts on emerging markets going into Easter weekend

Posted
3/30/2013 8:30:00 AM
By: Emerging Money
Referenced Stocks:

Here's a quick recap and what to look forward to in Q2:

[caption id="attachment_69704" align="alignright" width="300" caption="If emerging markets are to outperform next quarter, China will be the key"] Image courtesy hiddenninjskills: http://www.everystockphoto.com/photographer.php?photographer_id=73543 [/caption]

Fund flows into emerging markets ( EEM , quote ) clearly have taken a slight detour. After a staggering run of 24 straight weeks, we are now seeing net outflows -- 1.6Bn last week out is the largest since Sept 2012 -- but nothing major.   ETFs will always show the marginal dollar allocation and clearly EM is out of favor relative to DM.  But, we know that and we have discussed this trend ad nauseum; so, this may be the opportunity. Equities in Q2 will not take their lead from the US, but rather, the EU and China ( FXI , quote ). If you are an EM player, you need China to rally to see a proper, sustainable rally.  Growth in G3-US is the key to any commodity recovery.

Meanwhile volatility is likely to rise in Q2, and should be traded hard if you are in high quality names.  Invest with confidence on the dips if you have the conviction of your work to rely on.