Emerging Markets

Donald Trump’s all-but-certain Republican nomination is somehow a fitting capstone to a stock market era in which it’s paid to be provincial.

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We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.

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A strong dollar and low commodity prices are major forces dragging down EM currencies across the board.

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The Chinese government’s repeated stock market intervention attempts over the past several weeks have been remarkable, and obviously antithetical to the country’s move toward a more laissez faire corporate environment.

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Even though the ten EM sectors are growing at a much stronger pace than corresponding U.S. sectors on the Top-Line, only a small margin exceed the U.S. in terms of EPS growth.

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Emerging Market stocks are probably the cheapest equity subgroup in the world today, trading at 13.0x our 5-Year Normalized EPS estimate—much lower than that of foreign Developed Markets (17.6x) and the S&P 500 (21.3x). But, EM stocks have languished near these valuation levels for almost three years.

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While we expect an eventual break in this relationship, today Emerging Market equities are following, fairly tightly, the cycle of industrial commodities—a cycle that rolled over (on a secular basis, we believe) in 2011.

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The price of crude oil staged a dramatic change of fate in the past few months, and the bottom is still nowhere in sight.

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We slashed the Core Fund’s Emerging Market equity position in 2011, a decision that paid off handsomely until very recently. Is it time to rebuild EM exposure?

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We’d rather eat broken glass than have to forecast financial market correlations, but that doesn’t mean we ignore them altogether.

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As a follow up to a 2012 Special Study, we examine the growth in Electronic Payment Systems. Global competition in the industry has significantly heated up, as more countries are setting up their own national payment systems, relying much less on the “big four” global giants.

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A few measures are suggesting that investor sentiment towards EM has reached a low ebb.

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The emerging markets are in a much better financial position to weather any financial turmoil than they have been in the past.

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EM valuations look cheap in a stock market world that otherwise doesn’t. But even their “cheapness” bothers us.

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The current EM weakness is not yet a full-blown crisis but, if it does become one, it will drag down developed economies too.

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What worked, what didn’t; what you need to consider for investing in Emerging Markets this year.

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We find hidden opportunities in Equipment & Services Providers, Coal and Natural Gas. We consider these themes longer term holdings instead of short-term plays

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Identifying opportunities given this summer’s momentum reversals and currency vulnerabilities.

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We examine Emerging Markets from both the top-down and bottom-up perspectives as we try to identify where to move and what to expect. We check in on two successful EM thematic group ideas as well.

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