Emerging Money http://emergingmoney.com Your Ticket Around The World Thu, 11 Feb 2016 20:40:16 +0000 en hourly 1 Emerging Money Daily Audio Call February 11 http://emergingmoney.com/emerging-markets-insight/emerging-money-daily-audio-call-february-11-2/ http://emergingmoney.com/emerging-markets-insight/emerging-money-daily-audio-call-february-11-2/#respond Thu, 11 Feb 2016 20:40:16 +0000 http://emergingmoney.com/?p=117387 Emerging Money Daily Audio Call February 11 - Are markets oversold and nearing a capitulation point as Gold rallies 4% and bond yields hit historic lows? 

We give you our view …but hint: there is little policy can do at this point to inspire massive change in sentiment.

Some assets have shown strong resilience in [...]]]> Emerging Money Daily Audio Call February 11 - Are markets oversold and nearing a capitulation point as Gold rallies 4% and bond yields hit historic lows? 

Phone AudioWe give you our view …but hint: there is little policy can do at this point to inspire massive change in sentiment.

Some assets have shown strong resilience in this tape and we review where investors can “hide out”.

EM investors have to look to local currencies for direction right now and despite Dollar weakness, EMFX is going lower.

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Dollar Technicals http://emergingmoney.com/analysis/dollar-technicals-2/ http://emergingmoney.com/analysis/dollar-technicals-2/#respond Tue, 09 Feb 2016 19:32:53 +0000 http://emergingmoney.com/?p=117103 Investors should understand two things about the US Dollar (UUP, quote):

It is currently oversold by any measure of momentum It looks to be going lower in the medium term according to fundamental technical analysis

The unwind of the Yen trade and weak US data has the Dollar on its back [...]]]> Investors should understand two things about the US Dollar (UUP, quote):

  1. Un_dollar_usIt is currently oversold by any measure of momentum
  2. It looks to be going lower in the medium term according to fundamental technical analysis

The unwind of the Yen trade and weak US data has the Dollar on its back foot....

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Emerging Money Daily Audio Call February 9 http://emergingmoney.com/emerging-markets-insight/emerging-money-daily-audio-call-february-9-2/ http://emergingmoney.com/emerging-markets-insight/emerging-money-daily-audio-call-february-9-2/#respond Tue, 09 Feb 2016 19:19:52 +0000 http://emergingmoney.com/?p=117096 Emerging Money Daily Audio Call February 9 - Extreme positioning continues with USD looking oversold and the rallies in Gold and Volatility in the short term could be worth fading.

EM back near key support.  With the Dollar in the medium term looking capped cyclical trades look tactically very interesting…which ones?  We discuss…

Fed on [...]]]> Emerging Money Daily Audio Call February 9 - Extreme positioning continues with USD looking oversold and the rallies in Gold and Volatility in the short term could be worth fading.

Phone AudioEM back near key support.  With the Dollar in the medium term looking capped cyclical trades look tactically very interesting…which ones?  We discuss…

Fed on the tape tomorrow.  What do we expect?

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Emerging Money Daily Audio Call February 8 http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-8-2/ http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-8-2/#respond Mon, 08 Feb 2016 19:55:17 +0000 http://emergingmoney.com/?p=116947 Emerging Money Daily Audio Call February 8 - What are we to conclude when the highest quality companies in the world without credit issues are being thrown out indiscriminately?

And how would we trade EM equities now that we are back near the low end of the recent trading range? We develop our thesis [...]]]> Emerging Money Daily Audio Call February 8 - What are we to conclude when the highest quality companies in the world without credit issues are being thrown out indiscriminately?

Phone AudioAnd how would we trade EM equities now that we are back near the low end of the recent trading range? We develop our thesis and guide you towards actionable ideas.

Cross asset class correlation has some ways to play out.  Today’s equity market move is rooted more in US Treasuries testing near historical lows again on the 10yr, yet the 2yr note still has some ways to go….we explain implications of this.

Gold remains not only a safe haven but not even close to a consensus call despite a massive run.  What do you do now with gold?

Credit markets are telling a story that equity investors need to follow but isn’t there a lack of price discovery leading to an overshoot?

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Constructive Charts http://emergingmoney.com/analysis/constructive-charts-2/ http://emergingmoney.com/analysis/constructive-charts-2/#respond Mon, 08 Feb 2016 19:03:40 +0000 http://emergingmoney.com/?p=116939 For Investors it's difficult to find positives in the global macro-overlay or even in bottom up fundamentals as we assess valuations which are cheaper but not dirt cheap( you can't have cheap valuations if despite lower stock prices, earnings are weak to nonexistent).

On another you level you have to look at what the market [...]]]> For Investors it's difficult to find positives in the global macro-overlay or even in bottom up fundamentals as we assess valuations which are cheaper but not dirt cheap( you can't have cheap valuations if despite lower stock prices, earnings are weak to nonexistent).

TraderOn another you level you have to look at what the market is telling you and where we are relative to where we have been. This is where technicals are helpful because they can begin to put some rational assessment on where irrational emotions take you in the middle of a global equity swoon.

Tonight on the Ticker District webinar called "Unfinished Business" I will try to make the case for where despite thinking markets can trade lower, I think markets have priced in a lot of pain. EmergingMoney.com investors have been hearing our caution via the Daily Audio Conference Call. While continue to point out key trading levels and tactical ideas in the midst of the selloff, we have been framing our ideas from the context of emerging markets (EEM, quote). "Our markets" have been in decline for 5.5 years so on some level we have already faced the extreme sentiment changes.

EmergingMoney.com subscribers can a preview into tonight's webinar in the form of a charts that I will talk about. One such chart is our classic ration between EM equities and the SPX or "developed equities". We refer to this as the "EM/DM spread".

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Emerging Money Daily Audio Call February 5 http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-5-2/ http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-5-2/#respond Fri, 05 Feb 2016 19:24:27 +0000 http://emergingmoney.com/?p=116736 Emerging Money Daily Audio Call February 5 - For investors there are more questions than answers from this week’s trading and the weekend forces a fresh round of macro risk assessments.

What is the top of our focus list and what was the big trade this week that may reverse hard next week?

Apparently Punxsutawny [...]]]> Emerging Money Daily Audio Call February 5 - For investors there are more questions than answers from this week’s trading and the weekend forces a fresh round of macro risk assessments.

Phone AudioWhat is the top of our focus list and what was the big trade this week that may reverse hard next week?

Apparently Punxsutawny Phil saw no shadow on Groundhogs Day so we are soon to be clear of Winter yet it’s snowing today for only the second time this winter.  In another case of Groundhogs day, Global banks are under pressure as if it is 2008 all over again.  Is it?  Let’s discuss…

How can you make money in this market and still sleep at night?

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TOP-DOWN, BOTTOM-UP, OR SOMETHING IN-BETWEEN? http://emergingmoney.com/uncategorized/top-down-bottom-up-or-something-in-between/ http://emergingmoney.com/uncategorized/top-down-bottom-up-or-something-in-between/#respond Thu, 04 Feb 2016 18:52:38 +0000 http://emergingmoney.com/?p=116580 By Asif Khan | Published on: February 3, 2016

Editor Note: Foreign exchange fluctuations and macro imbalances have a tremendous impact on stock returns in developing markets, making it essential to anticipate and adjust for these movements. We are pleased to share some insights from a [...]]]>
Please see the guest post from our friends at EMFM Investor:

By Asif Khan | Published on: February 3, 2016

Editor Note: Foreign exchange fluctuations and macro imbalances have a tremendous impact on stock returns in developing markets, making it essential to anticipate and adjust for these movements. We are pleased to share some insights from a colleague, Asif Khan, currently a research analyst at Exotix Partners. Asif and Caglar worked together at Caravel Funds and have extensively debated the best way to account for macro considerations as a bottom-up, fundamentals-driven investor. Each has influenced the other in myriad ways. Without further ado, let’s get to this critical developing insight.In Frontier and Emerging markets the cost of not understanding the big picture can be very painful. Countries with weak institutions, frequently coupled with very narrow export bases, can change quite rapidly on both the upside and the downside. This creates the potential for big losses in USD terms as well as numerous missed investment opportunities.

Graham and Dodd-style investing is predicated on the notion that value is recognized over the long term. As Benjamin Graham famously asserted, “in the short run, the market is a voting machine but in the long run, it is a weighing machine.” Implicit in that formulation are many developed market assumptions about political stability, exchange rate volatility, peaceful power transitions and a meaningful degree of economic policy consensus. Often, in a developing market context, those factors simply can’t be held constant. The ability to pursue a purist bottom-up strategy, devoid of political economy considerations and the macroeconomic fallout from poor policy, is severely constrained. If all risk is simply the variability of future outcomes then these additional “macro” considerations necessarily widen the band of potential returns for individual companies.

Alternately, training all the analytical firepower on macro issues can lead to problems as well. Emerging markets are notorious for their extreme dispersion – the spread between the performance of the best companies and the worst– even in countries where the balance of macroeconomic factors are positive. What to do? Our approach is rooted in fundamental company analysis; we scour markets for good companies first and perform inordinate diligence on the real world business and its prospects. However, we then employ what we call a “macro overlay”, highlighting the big picture variables that can frustrate the process of value realization for the individual company. One added benefit of assessing these variables is they often form into themes that narrow the bottom-up stock picking process. For example, declining commodity prices have resulted in low inflation in commodity-importing South Asian nations and are good for consumer stocks. Our macro overlay is also used to eliminate certain countries altogether, such as Iraq where the security situation prevents investors’ from conducting on the ground due-diligence and Ukraine where exceedingly high levels of toxic assets in the banking sector profoundly inhibit economic activity.

While it’s easy to see that macroeconomic fundamentals can impact company cash flows and the discount rates employed, developing markets often add important wrinkles. For example, a high fiscal deficit even in developed markets usually means that tax increases are on the table. However, in some developing markets, government revenue boards will immediately target Financials, Tobacco and Telecom companies to address the problem, or in more extreme cases simply resort to money printing. Extended periods of inflation make value realization quite challenging! And while a significant current account deficit in developed markets is not necessarily the end of the world, if it coincides with an inability to see capital account inflows — a common developing market theme — the resulting extreme imbalance can wreak havoc on exchange rates.

Let’s move away from theory and look at a few case studies. All three examples are from South Asia, my area of focus as an analyst.

The Return of Orthodox Policy

In 2013 a large number of political analysts had forecast a hung parliament in the run-up to Pakistan’s legislative elections. This came despite a highly unsuccessful stint at the helm of government by the Pakistan People’s Party (PPP). Widespread corruption allegations, an inability to exercise economic reforms demanded by the IMF and high inflation, due to printing large amounts of money to finance the country’s deficits, all lead to a decided lack of popularity. Despite this dynamic, the party was perceived to be entrenched.

The election results surprised most everyone as the conservative Pakistan Muslim League (PML-N) consolidated enough seats to form an independent government. The new government moved swiftly and entered a new IMF program to avoid a balance of payments crisis, injected liquidity into an energy sector burdened with circular debt and realigned towards orthodox economic policies overall. Unsurprisingly, stock market returns from the election date till end of 2014 were a massive 68% in local currency terms.

End of War

Sri Lanka experienced a major inflection point in 2009. In May of that year Sri Lanka’s civil war ended after a 26 year conflict. The war had led to massive expenditures by the government, with the bulk of the funds allocated to financing the fighting. The result was high levels of debt, a high fiscal deficit, lots of money printing and severe inflation. The end of the war was a watershed moment as the government could finally shift wasteful military expenditure and refocus on the development of the country, bringing large infrastructure projects to formerly war torn areas. The outcome was an immediate reduction in inflation as supply chains improved, a declining fiscal deficit and a big jump in GDP growth. Between the end of 2008 and early 2011, the equity market returned 381%. It’s worth mentioning that there was definitely an overreaction in equity prices, as the index is yet to exceed its 2011 high. Nevertheless, the structural change in the Sri Lankan economy caused by the end of the war transformed the fortunes of the country.

Structural Change

After two years of rule by an interim government backed by the army, Bangladesh held an election in December 2008 which resulted in the Awami League’s return to power with a massive majority, winning 76% of the electoral seats. On the new government’s immediate agenda was to increase power generation. But instead of building large, long-duration fixed asset power plants, they relied on oil-fueled rental power plants. The end result was a large change in the energy mix towards oil instead of natural gas. Meanwhile, oil prices which had hit $44 per barrel in early 2009 rose rapidly and exceeded $100 by the same time in 2011. This resulted in a deteriorating current account position and lead to currency depreciation of about 18% in 2011. In addition, the government couldn’t pass through the increased costs resulting in high subsidies financed by bank borrowing (crowding out the private sector). High double digit inflation coupled with this crowding out lead to a massive liquidity crunch as banks had to take time deposits at 14%. The country was forced to take IMF support and implement reforms such as energy price hikes and tight monetary policy to get the economy back on track. By 2013, the situation started to normalize, and from late 2013 to the end of 2014 the MSCI Bangladesh index returned an impressive 36%.

As these examples illustrate, economic conditions can change quite rapidly in developing markets. And these changes directly impact company fundamentals through cash flows or discount rates (i.e. risk free rates and risk premiums). Having a means of filtering the effects of global movements in interest rates, currencies and commodities can avoid costly investment errors.

DEVELOPING FOCUS

Developing_countries

Author Biography

Caglar Somek

Partner & Chief Investment Officer

Caglar Somek has fifteen years of equity research and portfolio management experience with a focus on emerging and frontier markets. Caglar is formerly the CIO of Caravel Management LLC and has also worked for Goldman Sachs Asset Management, Salomon Brothers Asset Management and Credit Suisse First Boston.

Caglar is fluent in Turkish and French, is a CFA charterholder and holds an MA in International Economics and Finance from Brandeis University as well as a BS in Economics from Universite de Paris Dauphine.

Alexander Schay

Partner & Managing Director Ultima Thule Research

Alexander Schay is a Managing Director at Ultima Thule, an equity research company focused on developing markets and an equity partner at WK Associates, a boutique energy consulting firm with a specialization in emerging market oil and gas.

Alex holds both an MS in Risk Management and an MBA from the Stern School of Business at New York University.

 

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Emerging Money Daily Audio Call February 4 http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-4-2/ http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-4-2/#respond Thu, 04 Feb 2016 17:57:10 +0000 http://emergingmoney.com/?p=116571 Emerging Money Daily Audio Call February 4 - Global markets continue to trade with extreme correlation and sadly bad news is good news again for risk assets as the Dollar weakens on US economic reality check.

We continue to caution investors about getting whipped around in day to day volatility across some of the most [...]]]> Emerging Money Daily Audio Call February 4 - Global markets continue to trade with extreme correlation and sadly bad news is good news again for risk assets as the Dollar weakens on US economic reality check.

Phone AudioWe continue to caution investors about getting whipped around in day to day volatility across some of the most oversold and overbot assets.  While we are making a case for bottoms being formed in the commodity complex the Dollar is suddenly very oversold.

EM is a range trade until proven otherwise and we give you are trading strategy for the core ETFs.

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Emerging Money Daily Audio Call February 3 http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-3-2/ http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-3-2/#respond Wed, 03 Feb 2016 19:16:17 +0000 http://emergingmoney.com/?p=116423 Emerging Money Daily Audio Call February 3 -  Global cross currents continue today as focus off oil and onto global financials. 

Why isn’t this 2008 for banks?

Currency moves can be explained by carry trades.  Is the move in the USD just a pause before resumption or have we turned around another one of [...]]]> Emerging Money Daily Audio Call February 3 -  Global cross currents continue today as focus off oil and onto global financials. 

Phone AudioWhy isn’t this 2008 for banks?

Currency moves can be explained by carry trades.  Is the move in the USD just a pause before resumption or have we turned around another one of these consensus trades?

US data should actually resume control of the market’s attention.  What do we mean?

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Emerging Money Daily Audio Call – February 2 http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-2-3/ http://emergingmoney.com/analysis/emerging-money-daily-audio-call-february-2-3/#respond Tue, 02 Feb 2016 19:53:05 +0000 http://emergingmoney.com/?p=116278 Emerging Money Daily Audio Call - February 2 - On the call today we focus on US data and what could take markets lower as get into the teeth of some important readings in the US tomorrow through Friday.

Oil remains the sentiment driver and today prices are lower despite oil earnings across the sector [...]]]> Emerging Money Daily Audio Call - February 2 - On the call today we focus on US data and what could take markets lower as get into the teeth of some important readings in the US tomorrow through Friday.

Phone AudioOil remains the sentiment driver and today prices are lower despite oil earnings across the sector which tell the tale of companies slashing capex, ultimately this I san oil positive.  We are also seeing a couple longer term bears on the street capitulate at these levels.

EM is a range trade to the downside until further notice.  We are getting near some levels we think you should pay attention to.

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