Emerging Markets
The Emerging Markets Dilemma
We’ve been either light on Emerging Market stocks or out of them altogether since early 2011, but have lately been watching for an opportune time to re-enter.
Emerging Markets: Not Persevering, Just “Preserving”
We’ll never know how world events might have evolved had Mitt Romney won the presidential election in 2012. But thanks to the wonderment of Emerging Markets’ underperformance, we can go right back to the last days preceding that fateful election.
Narrow Performance Divergence Among EM May Not Last
We’ve previously noted the narrowing performance divergence between top- and bottom-performing Emerging Market (EM) countries in recent years.
Emerging Markets: Down A Lot, But Not Really Cheap
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The stock market liquidity squeeze we’ve discussed this year hasn’t played out quite like we expected. Traditionally, Fed tightening and slowing money growth hit Small Caps earlier, and harder, than the blue chip stocks...
EM Country Rotation Based On A Stock Factor Model
Back testing shows stock-level factor alpha can be captured at the country level. With the rapid growth of single-country ETFs, this may prove an efficient, practical alternative to individual stock selection.
Economic Performance: Powerful Factor For Country Rotation
In previous studies, we looked at two classic factors for employing a country rotation strategy: valuation and momentum.
Sector Rotation: Momentum Versus Valuation Factor
For sector overweight/underweight decisions, applying a Momentum overweight with both EM and DM countries has been most successful.
Valuation-Based Country Selection/Rotation
Despite cyclicality, over the longer term, investing in lower valuation countries ekes out better performance in an EM portfolio, and Dividend Yield showed the most consistency in terms of value factor effectiveness.
Momentum-Based Country Rotation: EM Vs. DM
Last month we assessed the effectiveness of using valuation factors as a basis for country allocation. Using 20 years of data, our results showed that they work quite well specifically for Emerging Market (EM) country-rotation, however, the same valuation-based strategy does not appear to be value-added for Developed Market (DM) allocation/rotation.
Valuation-Based Country Rotation: EM Vs. DM
Many studies have evaluated momentum factors for over/underweighting country exposures within a portfolio, but few have considered valuation factors for country rotation within the Emerging Market space.
Emerging Markets: Fundamental Diffusion Indicators
Within EM, more robust growth is being exhibited by: 1) firms in Emerging Europe; 2) companies in Energy, Materials, and Financials; and, 3) larger cap companies.
Emerging Markets: Momentum-Based Sector Rotation
Momentum factors are effective in differentiating EM sector performance, with High Momentum significantly outperforming Low Momentum. Unfortunately, there is a lack of investable EM sector vehicles.
EM: The Case For Waiting...
We’ve mentioned that concerns over potential seasonal weakness in September and October seem pronounced this year, perhaps because the year has so far turned out a pleasant surprise following its horrendous start.
EM Leadership: Just The Beginning?
Our EM Allocation Model triggered a BUY at the end of August after 5 1/2-years in bear mode. This upgrade is consistent with a cyclical leadership run of one to four years relative to Developed Markets.
From Turkey To Thailand, EM Political Risks Hard To Dodge
A military coup was staged in Turkey on Friday, July 15th, but it was quickly suppressed. The damage, however, was done.
EM: Improved Sentiment But Macro Risks Still Dominate
Positive forces may be transient. Be wary of EM’s high correlation to commodities and Chinese stocks.
Xenophobia Gone Too Far?
Donald Trump’s all-but-certain Republican nomination is somehow a fitting capstone to a stock market era in which it’s paid to be provincial.
The Fed’s Capitulation To The Dovish Side— A Win-Win For EM & U.S.
We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.
What’s Driving EM Currency Weakness?
A strong dollar and low commodity prices are major forces dragging down EM currencies across the board.
The EM "Trap"
Emerging Markets: A Half-Off Sale!
The Chinese government’s repeated stock market intervention attempts over the past several weeks have been remarkable, and obviously antithetical to the country’s move toward a more laissez faire corporate environment.
Searching For Growth In Emerging Markets
Even though the ten EM sectors are growing at a much stronger pace than corresponding U.S. sectors on the Top-Line, only a small margin exceed the U.S. in terms of EPS growth.
Emerging Markets: Close… But Not Quite
Emerging Market stocks are probably the cheapest equity subgroup in the world today, trading at 13.0x our 5-Year Normalized EPS estimate—much lower than that of foreign Developed Markets (17.6x) and the S&P 500 (21.3x). But, EM stocks have languished near these valuation levels for almost three years.
The Surprising Winners In Emerging Markets
While we expect an eventual break in this relationship, today Emerging Market equities are following, fairly tightly, the cycle of industrial commodities—a cycle that rolled over (on a secular basis, we believe) in 2011.
Declining Crude Prices Good For Emerging Markets?
The price of crude oil staged a dramatic change of fate in the past few months, and the bottom is still nowhere in sight.
Time To Rethink EM?
We slashed the Core Fund’s Emerging Market equity position in 2011, a decision that paid off handsomely until very recently. Is it time to rebuild EM exposure?
Correlation Breakdowns
We’d rather eat broken glass than have to forecast financial market correlations, but that doesn’t mean we ignore them altogether.
Electronic Payment Systems: Can Strong Performance Persist?
As a follow up to a 2012 Special Study, we examine the growth in Electronic Payment Systems. Global competition in the industry has significantly heated up, as more countries are setting up their own national payment systems, relying much less on the “big four” global giants.
EM Sentiment Readings Reach Extremes
A few measures are suggesting that investor sentiment towards EM has reached a low ebb.
Emerging Market Currencies: January’s Panic Overdone
The emerging markets are in a much better financial position to weather any financial turmoil than they have been in the past.
The EM Value Trap?
EM valuations look cheap in a stock market world that otherwise doesn’t. But even their “cheapness” bothers us.
Can The EM Problem Spread To DM? Yes, If It Gets Bad Enough
The current EM weakness is not yet a full-blown crisis but, if it does become one, it will drag down developed economies too.
Emerging Markets: Dismal 2013, Hopeful 2014
What worked, what didn’t; what you need to consider for investing in Emerging Markets this year.
Supply/Demand Dynamics Drive Three Emerging Market Energy Themes
We find hidden opportunities in Equipment & Services Providers, Coal and Natural Gas. We consider these themes longer term holdings instead of short-term plays
Navigating Reversals In The Emerging Markets
Identifying opportunities given this summer’s momentum reversals and currency vulnerabilities.
A Comprehensive Look At The Emerging Markets: Diagnosis And Prognosis
We examine Emerging Markets from both the top-down and bottom-up perspectives as we try to identify where to move and what to expect. We check in on two successful EM thematic group ideas as well.
Is Overcapacity A Problem For Emerging Market Airlines?
Airlines are Attractive in both group models, but there could be trouble on the horizon as emerging market carriers face the challenges of rapid growth.
The Disappearing "Large" Effect And Emerging Market Performance
While U.S. stocks have surged this year, Emerging Markets have languished. What is going on in Emerging Markets to cause this unusual situation?
"Muddle Through"
The global economy is stuck in a “muddle through” mode with developed and emerging countries showing divergence in terms of leading indicators. Despite this divergence, they share one thing in common: an upturn in inflation. How much more room there is for easing is a key determinant of asset market performance.
Stock Picking Opportunities From Emerging Market ETFs
Changes in a major EM ETF’s benchmark and another big player’s new EM ETF introduction could provide stock pickers opportunities in select Emerging Markets.