Great piece, thanks for writing it. Quick question, how would you suggest a more retail/passive investor invest in EM? Are there any ETFs, Mutual Funds or Index trackers that you would suggest we take a look at?
Great note. The other things are positioning and valuation differentials which are near historic levels (Although this has been this case for some time).
MS upgraded EM Asia overnight as well...
Could India be the China of the the next decades EM bull market?
My personal view is that goverments are already trying to raise real wages - and this will be bullish for commodities, and bearish for financial assets. Given depressed valuations in EM, they may end up being a "safe haven" that outperforms.
India does look interesting - but then again it always does!
Brazil + other SA commodity exporters also look INCREDIBLY CHEAP on a REER basis. As we know, FX tends to lead other assets in these geographies so a large break lower in USDBRL (which we could be on the cusp of) could be a canary in the EM coalmine
One thought - China is now the biggest economy in the world by PPP terms, US in nominal terms.
China is by far the biggest commodity importer in the world. If policy is to raise real wages, wouldn't that imply policies to suppress commodity prices by the Chinese?
When I read the "Communist Manifesto" - the one economic idea I came across is the idea that labour is also a commodity - and that oversupply is the capitalist tool to force commodity prices lower. So "communist" planning promotes rising prices in all things.... If we look at real wages and commodities in the west since the since the thatcher reagan revolution of 1980, both have been very poor relative to assets....
Well thought out, as always! I invest in EM for a living and find EM asset class (FX, FI and Equities) very cheap on fundamentals.
I am not as much convinced Japan can get out of JPY weakness as I find FX and rates policy in Japan mutually eclusive, they need to pick a side and seemingly their focus is rates (i.e. deflation and keeping rates in check). As such, aside form some erratic verbal/actual FX intervention, it can't work while still keeping rates low.
As per Euro, well we all know the weakness in EEA and effect of energy. Plus, the rates are still low and ECB is well behind the curve, more so than FED. As such, I think EU capital is flowing to US and seems to continue to do so.
So, I think, until US / FED steps up and crafts a deliberate USD weakness (Plaza Accord II ?) and or investors start pushing back against US assets for various reasons (inflation, rich valuations, unsustainable fiscal framework and/or hidden debt monetization among others), we will continue facing headwinds in EM.
Technically, seems like, we are having another leg of bear market rally for the next few weeks.
building on your political framework, curious what your thoughts are on the potential that the Dollar's move has geopolitical motivations behind it? OPEC+ can cut production, Putin plays with Nat Gas, the US's response in this puzzle would be a strong Dollar, no? I'm eyeing EM as well, but don't think the Dollar's move is done yet, seems more like a pause
Yes - it could be an agreement to strengthen dollar to destabilise the Chinese Yuan.... but then why has Japan started to intervene? Why not just keep going?
Japan's actions still seems more like window-dressing vs something more permanent though.. but to your point, I agree they are starting to crack. They have to be hoping their recent acceleration in CPI doesn't keep going.. The EM-long, short Dollar is the next big move just waiting to happen, & very seductive - but I got burned on this exact trade a month or so ago. Hopefully this is it here as you bring up valid perspective
And the 20th National Congress of CCP to be held on Oct 16th, a claim of victory on fighting Covid by CCP would possibly indicating China is ready to move to next stage ?
Excellent post. More on this theme please!
working on them!
Great piece, thanks for writing it. Quick question, how would you suggest a more retail/passive investor invest in EM? Are there any ETFs, Mutual Funds or Index trackers that you would suggest we take a look at?
Great note. The other things are positioning and valuation differentials which are near historic levels (Although this has been this case for some time).
MS upgraded EM Asia overnight as well...
Could India be the China of the the next decades EM bull market?
My personal view is that goverments are already trying to raise real wages - and this will be bullish for commodities, and bearish for financial assets. Given depressed valuations in EM, they may end up being a "safe haven" that outperforms.
India does look interesting - but then again it always does!
Brazil + other SA commodity exporters also look INCREDIBLY CHEAP on a REER basis. As we know, FX tends to lead other assets in these geographies so a large break lower in USDBRL (which we could be on the cusp of) could be a canary in the EM coalmine
India looks one of the most expensive markets in the world.
Thanks Russell.
One thought - China is now the biggest economy in the world by PPP terms, US in nominal terms.
China is by far the biggest commodity importer in the world. If policy is to raise real wages, wouldn't that imply policies to suppress commodity prices by the Chinese?
When I read the "Communist Manifesto" - the one economic idea I came across is the idea that labour is also a commodity - and that oversupply is the capitalist tool to force commodity prices lower. So "communist" planning promotes rising prices in all things.... If we look at real wages and commodities in the west since the since the thatcher reagan revolution of 1980, both have been very poor relative to assets....
Well thought out, as always! I invest in EM for a living and find EM asset class (FX, FI and Equities) very cheap on fundamentals.
I am not as much convinced Japan can get out of JPY weakness as I find FX and rates policy in Japan mutually eclusive, they need to pick a side and seemingly their focus is rates (i.e. deflation and keeping rates in check). As such, aside form some erratic verbal/actual FX intervention, it can't work while still keeping rates low.
As per Euro, well we all know the weakness in EEA and effect of energy. Plus, the rates are still low and ECB is well behind the curve, more so than FED. As such, I think EU capital is flowing to US and seems to continue to do so.
So, I think, until US / FED steps up and crafts a deliberate USD weakness (Plaza Accord II ?) and or investors start pushing back against US assets for various reasons (inflation, rich valuations, unsustainable fiscal framework and/or hidden debt monetization among others), we will continue facing headwinds in EM.
Technically, seems like, we are having another leg of bear market rally for the next few weeks.
building on your political framework, curious what your thoughts are on the potential that the Dollar's move has geopolitical motivations behind it? OPEC+ can cut production, Putin plays with Nat Gas, the US's response in this puzzle would be a strong Dollar, no? I'm eyeing EM as well, but don't think the Dollar's move is done yet, seems more like a pause
Yes - it could be an agreement to strengthen dollar to destabilise the Chinese Yuan.... but then why has Japan started to intervene? Why not just keep going?
Japan's actions still seems more like window-dressing vs something more permanent though.. but to your point, I agree they are starting to crack. They have to be hoping their recent acceleration in CPI doesn't keep going.. The EM-long, short Dollar is the next big move just waiting to happen, & very seductive - but I got burned on this exact trade a month or so ago. Hopefully this is it here as you bring up valid perspective
And the 20th National Congress of CCP to be held on Oct 16th, a claim of victory on fighting Covid by CCP would possibly indicating China is ready to move to next stage ?
HK and Japan have gotten rid of covid restrictions. How far behind can China be?