Are Emerging Markets Too Hot?

Could emerging markets be too hot?

The table below is one reason why I have a short position in emerging markets.

click to enlarge

Emerging markets have been either the best or second best performing asset class over the past five years.

Now, that does not mean it cannot be over six or seven or eight years. Markets can do anything.

However, reversion to the mean is a powerful force in financial markets. Usually, the top performing asset class over a time period often lags thereafter.

There are structural long-term reasons to be bullish emerging markets. However, a slowing economy, extended valuations, dramatic out-performance, and stress in the credit markets are all reasons to be wary of high beta asset classes, of which emerging markets remains one.

Comments

[kkin365:]

Shorting the "emerging market"? What are you talking about. Be real. Be specific.

2008 Jan 03 11:12 AM

[Barry Robbins:]

FXP is an easy way to short Chinese stocks.

2008 Jan 05 08:05 PM

[Toro:]

kkin

You can establish short exposure through the ProShares, UltraShort Emerging Markets ETF, ticker EEV. It moves at 2x the opposite way of the MSCI Emerging Markets index.

Hope that helps.

T.

2008 Jan 16 11:28 PM