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Crossing Wall Street: The Emerging-Market Meltdown
The below link provides in easy to understand language why the emerging markets are in a bit of striff and what one might look for during the near term.
The markets are once again busy with chatter about Emerging Market ( EM ) and the sound of CHOAS [CHAOS] seems to be re-emerging and many in the market are starting to wonder, what’s next ? A number of analysts have gone on record suggesting in their daily market commentary that emerging markets could now be a danger to global financial stability. No doubt, these are strong statements so it begs the obvious question, are we looking at another financial crisis, this time coming from the emerging markets ? And I do wonder if the fundamentals of EM have changed so dramatically leading some commentators to believe that a crisis is somehow imminent as evident from the way markets have reacted last week? Well, unlike our friends in the financial world, we ( I am referring to our group ) like many others who operate on a daily basis in the real economy can see and feel that the global economy is shaping up nicely and the IMF’s latest revised up global growth projection of 3.7% for 2014 and it’s growth expectation of around 5.1% for emerging markets from an earlier 4.7% GDP growth rate guidance, more or less reflects the ground the reality of the day. So the obvious question, why this panic and uncertainty ?
So investing in general isn’t all about following a trend or analysts reports or getting overwhelmed by the sound bites coming from various corners of the market or committing yourself to a fancy model. In most cases, a good investment is generally about following your own intuition or in other words your own inner radar just like many decisions we make or take in our lives and you can always use the information available in the market to make up your own mind in a similar way as you would seek advice from friends or family when taking an important decision in your life but always remember you will have to live with outcome and blaming others for an undesired outcome never helps although it might be quite tempting to play the game but if you do then you are denying yourself an IMPORTANT OPPORTUNITY TO LEARN and there is nothing scary about learning. So the all scary emerging market as projected by some in the market today in fact may not be that scary after all and remember a perception doesn’t always equal reality.
Thanks Old Skeet and Kenster for those links. If investors are diversified appropriately then they should not worry about these blips in history. As an example, if one has 5% of their portfolio in emerging markets, then the impact of this downturn should be minimal.
Reply to @JohnChisum: Agree - and did the math on the small foothold in PRELX I opened last week. Amounts to 1.06% of total investments. Would hope to jack that up to around 1.5% with more weakness - but beginning to have some doubts. (I think we may have hit bottom in the currency rout.)
I'd also question the need for ANY dedicated EM funds. Check your other funds, especially global and international bond and equity. Some carry quite a bit of EM stuff. Heck - even several of Price's target-date retirement funds invest in the stuff through other funds.
It was only a few years ago that people were falling over themselves in media and investor groups to suggest higher and higher allocations to EM with rationalizations of how EM is no longer the EM it was in risk, how EM is where the future growth is, etc, etc. Made perfect sense then as EM was providing magnified returns over DM. As much sense as it makes now for people falling over themselves to minimize the allocation to EM based on a year or two of underperformance.
Isn't the current condition what the so called.contrarians refer to as blood on the street and no one wanting to touch the asset class?
11:44 AM ET Seeking Alpha EEM Emerging market stocks enter bear market
The MSCI Emerging Markets Index (ETF: EEM) is off 22% from a peak set about three years ago, with the most recent slide coming as currencies tumble. Central banks have begun hiking rates to combat, with India overnight boosting its benchmark for the third time in six months and Turkey expected to take action today (an announcement is due at 5 ET). The South African central bank meets tomorrow, but a rate hike is not necessarily on the table. As usual, the unwinding of an epic credit bubble in China and the effect on growth tops the list of fears. One trust product - the China Credit Trust - narrowly avoided default this week thanks to a mystery third-party rescue. Buy the dip, says Ashmore head of research Jan Dehn. “There is some serious dumbing down going on in financial markets right now when it comes to EM. EM debt levels (especially external debt), EM’s general reliance on external markets, and EM’s reserve holdings have all improved beyond all recognition over the past 10 years.” Loomis Sayles' Peter Marber: “Compared to 1998, emerging markets hold over $7T more in hard currency reserves to cushion themselves from market volatility. For most emerging markets, the problems today are nothing like the problems of the mid-1990s. Very few countries are near default, and those that may be are relatively small.”
Comments
Talking About The All Scary Emerging Market, Market Perception And Investing In General
http://sonykumar.com/2014/01/26/talking-about-the-all-scary-emerging-market-market-perception-and-investing-in-general/
Emerging-Markets should only be only one small facet of a portfolio. At least, that is the way I view it.
WSJ: Another article on falling stock prices and emerging-markets ...
http://online.wsj.com/news/articles/SB10001424052702303277704579346444209310028?mg=reno64-wsj&url=http://online.wsj.com/article/SB10001424052702303277704579346444209310028.html
And, with falling stock prices it seems fair value as reported by Morningstar is approaching.
http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx
Old_Skeet
I'd also question the need for ANY dedicated EM funds. Check your other funds, especially global and international bond and equity. Some carry quite a bit of EM stuff. Heck - even several of Price's target-date retirement funds invest in the stuff through other funds.
It was only a few years ago that people were falling over themselves in media and investor groups to suggest higher and higher allocations to EM with rationalizations of how EM is no longer the EM it was in risk, how EM is where the future growth is, etc, etc. Made perfect sense then as EM was providing magnified returns over DM. As much sense as it makes now for people falling over themselves to minimize the allocation to EM based on a year or two of underperformance.
Isn't the current condition what the so called.contrarians refer to as blood on the street and no one wanting to touch the asset class?
However, my recollection was not accurate. Checked it. Here's the actual quote: "‘No, no!’ said the Queen. ‘Sentence first — verdict afterwards.’"
Road.... When you come to the fork in the road, take it.
Regards,
Ted
http://mfx.dasburo.com/art/truisms.html
EEM
Emerging market stocks enter bear market
The MSCI Emerging Markets Index (ETF: EEM) is off 22% from a peak set about three years ago, with the most recent slide coming as currencies tumble. Central banks have begun hiking rates to combat, with India overnight boosting its benchmark for the third time in six months and Turkey expected to take action today (an announcement is due at 5 ET). The South African central bank meets tomorrow, but a rate hike is not necessarily on the table.
As usual, the unwinding of an epic credit bubble in China and the effect on growth tops the list of fears. One trust product - the China Credit Trust - narrowly avoided default this week thanks to a mystery third-party rescue.
Buy the dip, says Ashmore head of research Jan Dehn. “There is some serious dumbing down going on in financial markets right now when it comes to EM. EM debt levels (especially external debt), EM’s general reliance on external markets, and EM’s reserve holdings have all improved beyond all recognition over the past 10 years.”
Loomis Sayles' Peter Marber: “Compared to 1998, emerging markets hold over $7T more in hard currency reserves to cushion themselves from market volatility. For most emerging markets, the problems today are nothing like the problems of the mid-1990s. Very few countries are near default, and those that may be are relatively small.”
Haven't we been hearing that the entire 22% dip down? Seems like bear markets bottom when you begin hearing sell the dip and everyone wants out.
Edit: So all the "experts" who were unable to predict or forecast the bear market are now saying don't worry, be happy.
Regards,
Ted
Opinion: 3 reasons to let this panic blow over — and find buying opportunities
http://www.marketwatch.com/story/why-an-emerging-markets-crash-wouldnt-matter-2014-01-29