Is An Emerging Markets Crash Ahead?

Macro Economist profile picture
Macro Economist

In my investing career I have witnessed a number of calamitous events, which have greatly impacted Emerging Markets:

  1. The first was the Mexican Tequila Crisis, which I witnessed as a young Economics student
  2. Next was the Asian Contagion/Russian local debt default, which I saw as a wet-behind-the-ears Analyst for a large bank
  3. During the TMT implosion, Argentina and Turkey went into major crisis while I was an ambitious Associate for a major Investment house
  4. Finally, the 2008 global financial crises unfolded before me as I was managing portfolios for institutional clients

Note these crises pop up once every four years or so and as such I think I am about to see my fifth. Given all the money that has flowed into the EM trade despite deteriorating fundamentals, I think this one could be pretty nasty.

Readers of my newsletter and Seeking Alpha followers have read for the past year certain asset classes which I fundamentally disdain. This list includes many Emerging Market proxies such as Canadian and Australian real estate (and their currencies), the British pound (FXB) and Russian ruble (and Central London real estate), as well as certain Emerging Market countries such as India, and South Africa, that I believe are on the verge of blow up and which I plan to write about in more detail in the near future. Conversely, I have also been a fan in the relative value of U.S. assets such as U.S. residential real estate and bonds (although that view has moderated).

There are some very simple reasons as to why I am mega-bearish on the Emerging Markets complex.

The first reason pertains to credit conditions. There is currently an incredible divergence between U.S. credit conditions - which have been somewhat resilient - and EM conditions, which continue to deteriorate. The first chart is an approximation of EM sovereign

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Macro Economist profile picture
I am a 15 year veteran of the buy-side, with over a decade of experience in Investment Management, at one time overseeing several billion dollars in hedge fund assets for institutional clients. Currently, I advise wealthy families on their investment portfolios as well as trade my own money. Articles on Seeking Alpha are meant to be a snapshot of my views, but do not necessarily always reflect my portfolio. I also try to write on controversial and contrarian topics.All money received from Seeking Alpha activities is currently being donated to various charities, including the World Food Program and UNICEF.

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