In and amongst the spam there have been some great comments about emerging markets. Long time reader Jey points out that volatility goes with the territory (which is 100% correct) another reader cautions that the market is warning to get out and come back later (could turn out to be correct) and I tried to offer something constructive to our friend with the questions on Russia.
One problem with trying to say now is the time to buy or time to sell is that different investors have done different things to this point. If this downturn has taught you that you own too much buying more here hardly seems right. I think that if you think you own too much of something you should reduce. If you have never owned emerging markets before, they are now 15%-20% cheaper and there is no question that a diversified portfolio needs some exposure.
People that bought heavy one month ago have a different mind set now than people who sold a month ago.
Jey's comment reiterates something I have been saying from the start, emerging markets are volatile and will always be volatile. No doubt people thought they could handle it when all the volatility was up.
A stock I own for clients, CVRD (RIO) is down a lot from its high. This is a name I have owned for a long time for some clients and one of the ones I reduced in late April. Brazil has been pounded in this but CVRD has good news, they successfully negotiated 19% price increases with China. Maybe that is not so good, last year's increase was about 70%.
Here is the thing with Brazil. They have stuff the world needs. Regardless of the volatility in stock prices, currencies or commodity prices, they still have the resources. The same is true for Russia.
My view is that a 2% weight in a stock form one of these places can help overall returns. If you have three or four stocks totaling 6%-8% that all go down by a third, the result might be that you lag for a little while, not so bad. When you get into the 20%-30% range the consequences become more severe.
Emerging markets are just an asset class. They were one if the hot ones but too much of anything is a bad idea and that is coming home to roost for some folks now.
That this part of the market is now down does not change the role that emerging markets play in a diversified portfolio.
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9 comments:
Roger, what is your view on RMBS?
good points as usual, but whether we are headed back up or further down I expect a bounce here soon. You could just as easily sell off to you comfort level after the bounce.
KL
a bounce??? bunch of Kudlow and Cramer perma bulls in here.
FU
My two cents - FWIW
The billion$ hedge funds and big commodity players are all in the those (emerging/commodity) markets with their options, collars, and derivative paraphenalia - - big time, and aiming at taking somebody's money.
All you have to do is outsmart them.
Remeber the old saw about the poker game, - if you don't know who the mark is - its you.
Keep your bets small and fold early.
OG
does monitoring bond yields for an emerging market country provide an early warning of equity movements? i was thinking that widening credit spreads for, say, idonesia or india would have been helpful.
great questions Sidney. I am not an expert on all the nuances but the movement of spreads is very relevant. I believe that more often than not spreads narrowing or widening can capture changes in sentiment but may not really capture the why behind the move.
Unfortunately unless you have a bloomberg terminal it is very difficult to monitor changes other than anecdotally as quoted in articles.
OG,
I normally find myself agreeing with you or learning from you, but (you knew there was a but) I still think waiting for a bounce makes sense.
two steps forward one step back. even if the direction is down a step back (up) would be expected. Well one thing I am certain about is one of us will be wrong :)
RMBS?
This is not one I follow anymore.It's history has been very much feast or famine. It has been rolling over for a while, I thought I heard it had good news with thte patent issue? If that is right but it is still going down?
I'm not a buyer for now.
Thanks Anon, but this is case where we both might be right.
If you have the time (and patience) to wait, you will probably make out fine.
My bias is - I am 75+ yrs old with little time to recover. So I should be too conservative for most readers.
But, I am still hedging the overall trend by holding my 5% GLD allocation.
OG
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