Results for search of category: Emerging Markets

China vs US Exceptionalism

Our recommended exposure to Chinese equities is effectively zero, but EM Equities (of which China is by far the largest part) are critical to the success of any global balanced portfolio. So, we have looked at individual Chinese sectors to see which ones have been the most successful diversifiers compared to their US counterpart. The good news is that it is easy to identify those which fail the test badly: Financials, Industrials, Telecom and Small Caps. The bad news is that only Technology has offered successful diversification over the whole of our test period, but now is not a good entry point. There may also be opportunities in Consumer Staples and Healthcare, but, again, we prefer to wait for a better entry point.  [Read More... ]

Time to Separate China from EM

We think it is time to take China out of the main EM equity indices. Some of the arguments made for its inclusion are no longer valid. It doesn’t make sense to have separate benchmarks for companies listed in China and Hong Kong. Separate indices for China plus Hong Kong and the rest of Emerging Markets would increase flexibility for all investors, not just those who no longer wish to have passive exposure to the current regime in China. Once we make the split, we can see that EM ex China has already begun an interesting rally.  [Read More... ]

The China Question

Our recommended weight for Chinese equities has just hit its all-time low since the beginning of this century. They have been in extreme underweight territory for their longest period ever. We think this is more than a temporary misunderstanding. It could represent the breakdown of the pro-China consensus that has dominated US investment thinking for over a decade. There may be parallels with what happened when the US became disillusioned with Russia 10 years ago. US investors who want international equity diversification will be forced to have another look at Europe.  [Read More... ]

Fizzing or Bubbling?

Everyone is suddenly on bubble alert, but our numbers suggest that the main danger lies in Asian equities, not the US. China, Hong Kong, Taiwan, Korea, India, Japan, Australia and Indonesia all have weekly RSIs above 70%, which is our warning signal. US equities are still below this threshold, apart from Small Caps, which broke above it three weeks ago.  [Read More... ]

10 with 10% in China

We think that global equities could be on the cusp of switching to a new big idea, moving out of US Technology and into something else. It may be US infrastructure, depending on who wins the election and controls the Senate, but the growth of the Chinese consumer has been thrown into sharp relief by the relative impact of Covid on China vs the West. Oil at $35/bbl is a significant stimulus and a similar idea (overweight in EM Equities) worked very well in 2002-05. We have a big overweight on both Consumer sectors in China and we highlight 10 consumer-related companies in Europe which derive more than 10% of sales from mainland China.  [Read More... ]

No Read Across in EM

Concerns about the credit quality of EM Bonds are rising. Some of the countries often cited are frontier, rather than emerging markets, but the concerns are well-founded. For us, the key difference from other bond categories is that the Fed won’t be buying them. We don’t think there is a read-across to EM Equities, which are now less volatile than the US, mainly because the major Asian economies have dealt with the virus better.  [Read More... ]

One Disease; Three Themes

Three interesting ideas emerge from our regular reports. First, the volatility shock will almost certainly be as bad as 2008. Second, we believe that a long Technology /short Energy trade will have a positive pay-off no matter whether equity markets rise or fall. Third, our models are increasing exposure to EM Equities. We recognise this is a contrarian trade, but it is well-supported by our process and doesn’t depend on one or two countries.  [Read More... ]

Asia: First In, First Out

The recent volatility shock is as big as the one in the middle of the GFC and it isn’t over yet. It has also happened three times faster, in three weeks rather than nine. Fear is inevitable, but the are some interesting opportunities, especially in Asia. Countries like Taiwan and South Korea have managed the corona virus better than the US or Europe, while China is already recovering. If you wait for the bounce in the West, you may miss it in the East.  [Read More... ]


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