Monday, 23 July 2018 12:10

An Emerging Markets Rally is Starting

(Rio de Janeiro)

Emerging markets have been in a really tough patch lately and generally entered a bear market recently. Their losses have been urged on by higher rates and a stronger Dollar. However, the situation may be about to turn around. The argument is from UBS Asset Management, who says that EMs have de-risked from five years ago during the Taper Tantrum, and that they are in a much stronger financial position now. In particular, whereas investors were worried about EM risk during the Taper Tantrum, now the losses have just been down to a rising Dollar, which does not signal any fundamental weakness.


FINSUM: Our worry with this argument is the lack of a catalyst. While all of what UBS argues may be true, what will cause the market to comprehensively reverse?

Published in Eq: EMs
Tuesday, 17 July 2018 09:20

Is the Market Denying Political Reality?

(Washington)

Something very odd has been going on in markets for the last few weeks—investors are completely tuning out politics. The political situation both domestically and internationally has grown steadily worse in recent weeks. The US has a growing trade war with China, Brexit is a complete mess, Trump is meddling with allies etc., yet markets continue to move higher. Even emerging markets have rallied.


FINSUM: On top of politics, recession fears are also growing. Accordingly, it is slightly concerning markets are rising. Markets have learned to not take Trump’s comments too seriously, but that lack of sensitivity might be serving investors poorly right now. The Wall Street Journal says it best: “Markets are notoriously bad at pricing changes in the political weather until they are forced to”.

Published in Politics
Friday, 13 July 2018 10:08

A Big Financial Crisis May Be Coming

(New York)

One of the market’s favorite prognosticators has just called for a big financial crisis. Mark Mobius, 81, veteran investor, thinks that EMs are going to plunge, and that the normalization of interest rates and monetary policy will cause a crisis. “There’s no question we’ll see a financial crisis sooner or later because we must remember we’re coming off from a period of cheap money … There’s going to be a real squeeze for many of these companies that depended upon cheap money to keep on going”, says Mobius.


FINSUM: Emerging markets are currently having a rough time and the rise in rates is going to be turbulent, but calling for a Crisis seems a bit premature.

Published in Macro
Wednesday, 27 June 2018 09:11

A Bear Market is Arriving

(New York)

Investors need to take notice, a bear market is arriving. Trade wars and rising rates have been plaguing equity markets, and US indices seem to have already seen their peaks. But while the US market is still holding on, investors need to take notice that both China and emerging markets are both flirting with bear markets, with China crossing into one this week. The threat of a trade war and a strengthening Dollar are both weighing on international stocks, and are threatening to crimp economic output. Morgan Stanley is warning of a big drop in the MSCI emerging markets index. According to the Bank’s strategy team, “This is a dangerous market … We now think we’re heading to an outright bear market”.


FINSUM: If there is a global recession coming, it seems like one that will start overseas and filter back to the US. The big question is whether that recession will lead to major asset meltdowns, such as in corporate debt.

Published in Eq: Large Cap
Tuesday, 26 June 2018 08:28

The Next Big Short is Here

(Washington)

The Chinese stock market is now in a bear market and there is a great deal of pressure on its currency. Last time there was this much pressure, in 2015, the market broke, with stocks plunging and the yuan devaluing by 7% over the year. US stocks even plunged in fear. Now, the situation looks like it might occur again, causing some to call the yuan the next “big short”. The currency is already down almost 1% since Friday, and is in negative territory for the year. A burgeoning trade war with the US is adding pressure.


FINSUM: So the one big support for the yuan is the current strength of the Chinese housing market, which has been strong recently (a big contrast to 2015). That seems like it will keep a blow out from happening.

Published in Macro
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