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Time To Buy Emerging Markets?

Cheap is a relative measure. Yet, when compared to out of this world US valuations, emerging markets outlined below are indeed cheap.  

Is it time to load up? 

Not so fast. There are a few things we have to consider here. First, as the US market enters its bear market of 2014-2017, it is highly probable that emerging markets will follow the US market and get even cheaper. While the divergence is possible, based on the past, it is unlikely. Second, just because the market is cheap doesn’t mean it can’t go down further for a prolonged period of time. We  have to wait for a technical market reversal pattern before committing capital.

In conclusion, this would be a great time to start following emerging markets, waiting for a trend reversal. Once the US Market sells off and once the bear trend in emerging markets shifts, such markets will present patient investors with an amazing buying opportunity.  

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Time To Buy Emerging Markets? Google

emerging markets

These markets are ‘mind-boggling’ cheap

Given events in Argentina, Venezuela, Turkey, and Ukraine, emerging markets are looking more like an emerging threat rather than an emerging opportunity.

However, Larry McDonald, Senior Director at Newedge, says emerging markets are a great place to find bargain investments. The usually bearish author of “Colossal Failure of Judgment” has two reasons why he thinks emerging markets are an attractive buy.

1. Seventeen weeks of outflows from emerging markets

During the first two months of 2014, $11.3 billion have left emerging market equity and bond exchange traded funds, reflecting the overall sentiment of worldwide investors. McDonald sees this as mirroring similar outflows in developed markets that subsequently rebounded significantly.

“What we’ve seen at the great market bottoms – in the United States, 2009; Europe, 2012 – [is] a surge in outflows,” says McDonald. “What’s happening now in emerging markets is historic and it’s right on proportion with the 2012 bottom in Europe and 2009 bottom in the United States.”

2. Lowest valuations for emerging markets since 9/11

Though emerging markets are considered relatively risky, particularly in this environment, McDonald believes they are being over-discounted. He believes investors worried about buying emerging market stocks should heed the words of Seth Karman, founder of hedge fund Blaupost Group, who once said, “Buying right never feels good.”

“If you look at the emerging markets now, they are trading at a great valuation with a lot of with a lot of risks in the world,” says McDonald. “On a price-to-book [basis], they’re at 1.3 times book [value]. Developed markets like Europe and the United States are well above 2.2 to 2.3 times book. But, within the emerging markets, countries like Russia are trading at half [the value] of book and that’s too cheap to pass up.”

Emerging Markets Price-to-Book
Indonesia 3.2x
India 2.6x
South Africa 2.6x
China 1.5x
Turkey 1.5x
Brazil 1.2x
Greece 1.0x
Russia 0.5

While McDonald acknowledges that fear of instability in places like Russia given the current political climate may be a reason for the deep discount to its stocks, he believes that’s overdone. As example, he points to the Market Vector Russia ETF (the RSX).

“The RSX fund has 32 million shares outstanding,” says McDonald. “On Monday, 25 million traded. That’s the type of thing you see when a biotech company misses earnings or has a failed trial. This isn’t a biotech – this is a country’s stocks – which is mind-boggling. So, I don’t think there’s anybody left to sell these names.”

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Emerging Markets Crisis… About To Throw US Into A Recession? Or Is It The Other Way Around?

The Ivory Tower brain bank idiots have done it again. Yes, let’s blame those pesky “Emerging Economies” for all of our economic troubles. The reality, of course, is the other way around. The emerging economies are the extensions of the US Economy to whatever degree they were stupid enough to dilute their own economies with the help of the FED and it’s “free” credit.

The emerging economies will suffer the same fate as the US, but to a much more devastating degree. When the US Economy catches the cold and slips back into a severe recession, due to the upcoming bear market (based on my mathematical work it has already started),  the emerging economies will, to the large extent collapse……vomiting out blood and guts associated with credit. 

Philippines is one of the “Emerging Markets”. Philippine Stock Index: Please note the technical setup. The chart is sitting right next to support indicating a possible break down. There is absolutely no support until it reaches 2,000 or 60% haircut. 

philippines-stock-market2

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Emerging markets: Big trouble ahead but crisis? “I think not” says economist

The pain in emerging markets is cutting into the performance of funds managed by some of the biggest names on Wall Street including BlackRock and T. Rowe Price, with some mutual funds already down 10% this year on falling stocks and currencies. As investors rush to pull more money out, how concerning is the emerging markets turmoil and how might it affect developed economies like the United States?

“Emerging markets are certainly in trouble,” says Eswar Prasad, Cornell University professor and author of “The Dollar Trap: How the U.S. Dollar Tightned Its Grip on Global Finance.” There is “big trouble ahead, but a crisis? I think not.”

Prasad says Turkey and Argentina in particular are countries that are really susceptible to crises. Others like Brazil, India and South Africa — which are vulnerable because of large current-account deficits, budget deficits, and political instability — are going to have a rough patch. But he notes that things have really shifted over the last decade for emerging markets, which don’t have as much external debt as they used to and possess lots of cash reserves.

In terms of what impact this turmoil has on the developed world, opinions differ. Economist Nouriel Roubini is warning of a tail risk to the global economy and Goldman Sachs says “what happens in emerging markets mostly stays in emerging markets.”

Prasad says the emerging market weakness is “certainly not good for the U.S. economy.” He says with these economies slowing, “the world is again going to be looking to the coattails of the U.S. to pull it along.”

He asserts that the weaknesses in the rest of the world keeps the U.S. dollar stronger than it would otherwise be, which means fewer exports and fewer jobs here. While he acknowledges that it makes U.S. imports cheaper, he says it’s not good for growth.

Emerging Markets Crisis About To Throw US Into Recession? Or Is It The Other Way Around? Google

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Why The Philippine Economy Is About To Collapse

Forbes Writes:  Here’s Why The Philippines Economic Miracle Is Really A Bubble In Disguise

philippines-stock-market

The Philippines’ bubble will most likely pop when China’s economic bubble pops and/or as global and local interest rates continue to rise, which are what caused the country’s credit and asset bubble in the first place. The resumption of the U.S. Federal Reserve’s QE taper plans may put pressure on the Philippines’ financial markets in the near future. Another global economic crisis (as I expect) also puts remittances at risk.

As I’ve been saying even before this summer’s EM panic, I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse this time due to the fact that more countries are involved (Latin America, China, and Africa), and because the global economy is in a much weaker state now than it was during the booming late-1990s.

Read The Rest Of The Article

The article above is a MUST read for anyone living in the Philippines. Even though Philippines was the fastest growing economy in the world in the 3rd quarter of this year, the party is about to end.  I am sorry to say, but the Philippine economy is about to go through a major decline/contraction/collapse.   

I love the Philippines and I wish the economic backdrop was different, but the reality is hard to ignore. The article above is right on the money, providing outstanding reference points and data. Once again, I highly encourage you to read it.  Instead of commenting on the points in the article, allow me to introduce the Philippine stock market technical picture into the equation.

From technical side the market looks very weak. It looks like it is about to break down to the downside. Big time.  The market has tried on multiple occasions to go higher,  but was unable.  A breakdown below 5,500 level would indicate that the bear market in the Philippines in back. The problem is (a huge problem) is that there is no real technical support until it gets to about 2,000. That would be a 66% decline from today’s market prices. In other words, the stock market is predicting a devastating full on economic collapse in the Philippines.

Why do we care about this and what does it have to do with the Philippine economy? The stock market is a leading indicator. As it goes, the economy ALWAYS follows.  If we break down below 5,500 level, I would expect the Philippine economy to be in a recession within 6 months.  Everything else will follow. 

***In reality, this is a worldwide issue. A massive credit bubble is indeed here (driven by the US Fed and unsustainably low interest rates) and it will play a major role in the demise not only of the US Economy, but all emerging markets. Including China. As I have stated on numerous occasions, the US bear market will start in March of 2014.

When it does, anyone and everyone who relies on cheap credit to grow their economies will pay the price.  Unfortunately, that includes the Philippines. It is simply unavoidable. Get ready. 

P.S. PLEASE DONATE TO TYPHOON HAIYAN VICTIMS HERE

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What Everybody Ought To Know About Upcoming Emerging Market Crisis

BusinessWeek Writes: Bad Loans Could Spark an Emerging-Markets Crisis

emerging markets investwithaelx

The world’s largest emerging markets recovered quickly from the 2008 financial crisis because consumers and companies went on a borrowing binge. Now, as those economies cool, bad loans are haunting banks from Turkey to South Africa. India is injecting money into state-run lenders facing a huge rise in soured debt, and Chinese banks have been told to increase provisions against lending losses. “Credit growth in emerging markets has been phenomenal since 2008,” says Satyajit Das, author of a half-dozen books on financial risk.

He blames near-zero-percent interest rates in the U.S. and other developed nations, which have kept borrowing costs artificially low. “Many borrowers will struggle to repay the debt,” he says. “We’re ripe for a new emerging-market crisis.”

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Could spark an emerging-markets crisis? You think?  How about will spark an emerging-market crisis. How about its already happening in countries like India with their currency being in a free fall.  

This is a systemic issue that comes from a singular source of low interest rates propagated by the FED. Of course everyone will borrow as much as they can when financing is flowing freely and interest rates are close to zero.  Particularly those in a week financial position. It allows them to survive for a little bit longer and they have nothing to lose. Yet, there is no chance in hell that these companies or borrowers can ever repair these loans.  Particularly not when both the US Economy and its financial markets are facing strong headwinds. The outcome? Massive defaults and substantial equity price declines in most emerging markets. 

Especially when you take the 2014-2017 bear market in the US into consideration (forecasted based on my mathematical timing work). While the US market is set for a 30-50% haircut, most emerging markets will not fare as well. 

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