Emerging Market Turmoil
It has been a turbulent spring for emerging markets. After a stellar start to the year the wheels fell off when concerns grew about US interest rate rises (already well-heralded for the last two years), quantitative tapering (ongoing since early 2015) and trade tensions (the only truly new issue). It was also certainly the case that strains in some emerging markets - Argentina, Turkey and Venezuela in particular - exploded onto the scene. But as soon as the "in trouble" narrative gathered pace the nervous money, which has mostly invested via ETFs over the last few years, began to exit. It is what we all know as, the 'risk off' trade.The problem is, not all emerging markets should be tarred with the same brush. There are problem areas, no one would argue that Argentina doesn't periodically blow up because it NEVER really faces the problems that it has built into the system over the last century. But is the same true of Thailand or Indonesia? Yes, contagion can happen - we saw that very clearly in Asia in 1997 and 1998 - but it only happens if there are good grounds for it to do so. Those grounds do not exist in Asia today.
In Asianomics Special Report No. 5/2018, Emerging Market Turmoil, Sharmila updates her previously published work on Asia's external debt picture and adds an assessment of the EM6 (Argentina, Brazil, Mexico, South Africa, Turkey and Venezuela). While ETF redemptions result in the biggest selling taking place in the largest components of the emerging market indices (i.e., the Asian markets) what Sharmila's analysis shows is that they are by far the safest countries in the EM universe. Conditions in Asia are distinctly different from the late-1990s crisis years and, given the sell-offs in equity markets, the current turmoil is presenting one of the best buying opportunities in the region in recent years.
Best for now
Jim
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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