Alex_G

A Meltdown in Emerging Markets?

Hey Chen,

Not a wild guess. 4x as much energy to produce a dollar of GDP. Fact. subsidizing energy costs. Fact. Manufacturing based economies are more energy intensive. Fact. Why is Brazil down 10% and Shanghai down over 50%?

I've been following the emerging markets for over 15 years and made a lot of money in these markets. The only ones I've been in since late September are latin america, eastern europe and a very small India position.

Watch what happens to energy subsidies in China after the Olympics. There might well be energy price protests.

Alex

A Meltdown in Emerging Markets?

All you have to do is chart Brazil (net energy producer) Vs China to know that it is partially priced in. I also believe that China is hoarding oil (burning instead of coal near Beijing to cut down on pollution) ahead of the Olympic games and will reduce subsidies after the games.

The 50+ % drop in the Shanghai Composite is telling us something big.

A Meltdown in Emerging Markets?

Roger,

Both China and India are very inefficient in converting energy use into GDP, the USA being 4x and Japan being 9x as efficient. Right now, their governments are subsidizing energy costs, to what degree is anyones guess. The net effect of this is transferring a portion of their foreign reserves to energy exporters.

High energy prices will affect these 2 economies (China more than India) far more than the US or Europe. As long as oil and coal prices stay at sustained levels, I believe both of these stock markets will face continued downward pressure.

I don't have the time to delve into the hard numbers and quantify the exact effects to their economies with any accuracy, so if anyone else has done the work, please share!!

Alex