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NikB
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I Love BIG TRENDS!
  • Time to take some money off the table in EMs... 0 comments
    Jun 5, 2009 6:49 AM

    After a hectic quarter, markets have in a sense reverted to a pre-crisis mode...with strong rallies in the global equity and commodity markets.. Some signs of tiring seem to be reappearing over the last few days...with markets nearing their historical valuation averages a breather may well be due in non-US markets..... secretary geithner's recent trip to china may have been in part to reassure china that  dollar depreciation would be a calibrated process and not one that the US pursues aggressively in the short term..for this reason the fed may stay off the bond market for a few days and not cap yields thereby soothing some chinese nerves... i would expect  a short term pullback in non-dollar assets and some outperformance in US equities over the next few weeks as people may misinterpret the jump in bond yields as an early sign of recovery which will eventually lead to disappointment on account of a renewed jumped in foreclosures..the failure of gold to take $1000 in the last few days coupled with continuing strength in crude and copper indicates that traders are getting a bit opportunistic...if ur playing inflation then gold gotta stay with the crowd not get all shy as its been doing lately...inflation is alive and well entrenched  as the long term play and i suspect it will get here faster than most people are expecting... the tide of liquidity that is flooding to play the carry in brazil,south africa and australia( Brazilian Real up 20% so far) indicates the big bets are on an extended period of benign interest rates in the US and sharply higher commodity prices (all the above countries are resource rich and offering anywhere between 6-10.5% on the long tenor bond).....however in the near term we may be a bit ahead of ourselves and a short sharp pullback would make things just peachy.... a short term rebound on the dollar taking the DXY to 82-83 is entirely plausible...... going into the autumn i think good opportunities will once again emerge in EMs as we see the effects of a credit de-freeze helping repair corporate balance sheets across emerging markets.. with a near tripling of monetary base (evidence is mostly anectodal for non-US markets) the recovery to a new nominal high in emerging markets will be faster..though for real returns one will need to look at net importer countries or commodity users rather than producers as large capital inflows will lead to stronger currencies thus leading to a better balance of payments and lesser pressure on fiscal measures to drive growth... moreover net importer countries will be more domestic demand driven than the exporters of east asia and russia..

    Disclosure: Long Nifty Futures (Benchmark Indian Index), have added puts last week to go delta neutral till september...

     

     

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