According to a study by Merrill Lynch investors are the optimistic on emerging markets they have been since 2004.To quote the Bloomberg article where I found this the bullishness is based "on the view stocks from Chile to Vietnam will be least affected by slowing economic growth."
This might be true fundamentally but there is a reasonable argument that says otherwise.
I tend to lean toward there being less of a fundamental link between the US and emerging markets but, assuming this is correct, emerging market stocks will not be immune from fast declines down.
During the last few fast declines down in the US emerging markets have dropped more, of course they have snapped back faster too.
No matter what you think about emerging markets and their fundamentals there is no arguing that the last few panics have hit them harder. To think it won't happen the next time is a tough argument to make.
If the quote above is true we would see this immunity during a slow selloff that leads to a bear market.
Vietnam is still going to put that very young and cheap labor force to work for the betterment of the country regardless of the US economic cycle. Ditto the rest of the Next-11.
Despite my enthusiasm for this segment I have been writing about moderation in the space for a long time now. Putting 20% into emerging sets up for a wild ride, wilder, I believe, than most people want.
Long time readers will know I have held ADRE personally and for a lot of clients for part of their emerging market exposure. In the last 12 months it is up 70%. A 3% weight a year ago would have added 2.1% of return to the total portfolio. The point is not that you should buy this fund, but that a moderate exposure in the right place can add a lot but at the same time a catastrophic drop in this sort of a thing (which is possible) would not decimate the account.
10 comments:
Hi,
I have been your reader for last 4 months.. and I am from India, one of those emerging markets. I guess that a mania will come to Indian equities after some time, since there are very few who invest in stocks now. And of course, only 4% of Indians own any equity. However, the % is rising which is a worrying sign of a mania.. God save my country men!
Thanks..
I don't understand your emerging market portfolio strategy.
How can you have zero exposure to china?
It makes no sense, and has cost your clients dearly.
reasonable question, I will follow up a little later.
rackgen,
thank you for joining us here. your market has quietly had a great run, the 7% hit from the other day notwithstanding, no?
not as much as china but close 40% YTD is pretty good. i think it makes sense to expect periods of lag and periods of beating other markets.
Hey Roger I wanted to send a great story over to you about a virtual investment site. Can you give me a contact so I can send it over to you?
Thanks, David
Penn.
Is this it? http://www.stocktrak.com/
Anon 5:20.
How can you say that Roger has no exposure to China? Check out ADRE's largest holdings:
http://finance.yahoo.com/q/hl?s=ADRE
Please don't deride folks that hold funds sometimes along with or without individual stocks.
As we have noted here before; Roger tells his clients that he will smooth out the ride. If his clients wanted a roller coaster ride they would hire Jim Cramer clones.
OT, here is a story about gold and the US dollar that may have some folks buying GLD, FXE and DXDDX:
http://tinyurl.com/2haev7
There have been a few times I have really cleaned up at the blackjack table. There have been a few times I have really cleaned up with individual stocks. I was in China, then eliminated exposure months ago, except for one stock I hold as a speculation.
I attribute mega blackjack winnings and mega stock winnings as a little skill aided by one hell of a lot of luck. China and other poorly regulated capital markets are akin to going to the blackjack table.
I'll go, but I resist believing I am brilliant if it works out. I'm lucky. And luck does run out.
Roger, I agree with you that investors who hold significant exposure in Emerging Markets can expect a wild ride, but I also believe it's wise to ride long term trends and overweight in asset classes that are outperforming.
http://tinyurl.com/2222sd
Could the long term trend reverse beginning tomorrow? Sure. Nobody can predict the future, but the beautiful thing is we don't have to.
Roger, its true that Indian equities had amazing run up, but I guess it won't go any further. There are calls from columnists & popular media about the index hitting 20000 this year. There is a good chance, but have to exercise a lot of caution!
Post a Comment