While printing 74K on Non-Farm Payroll report (NFP) today in the U.S. gives a temporary momentum boost to flagging spirits in emerging markets, it is not worth discussing other than in the context of what is moving markets today.
In the bigger picture emerging markets needs a stronger U.S. economy and thus labor force to pullout of its growth doldrums. Emerging markets’ needs Europe not to continue to discuss extraordinary stimulus measures if needed (as Draghi did yesterday).
Emerging markets needs to Japan to snap out of its 2 decade snooze with more follow through from their ambitious Abenomics game plan. Emerging Market is not suffering under credit related problems and largely government finances are intact.
The fact is playing emerging markets as an asset class is done and was probably done after the crisis but we continue to try and believe that one tide will life or sink all boats.
Neither side of that premise hold true for emerging markets. While we spend a lot of time showing spreads between iShares MSCI Emerging Markets ETF (EEM, quote) and S&P 500 (SPY, quote) to gauge overall sentiment shift to emerging markets, using the EEM as your conduit for investing in the asset class is yesterday’s game.
Country calls will be crucial in 2014 as will the ever important sector call. As we have discussed many times in the last few weeks, playing China can be fruitful and has been fruitful if you are playing the exposure to their growth.
There is a trade to be made in oversold emerging markets as defined by the EEM. Today’s weaker news is good news approach is not a bad trend to follow for a couple days with emerging markets’ YTD malaise.
But tomorrow begin your journey to pick countries and sectors with an emphasis on diversification and macro strength in the countries you invest.