Opinions expressed herein are those of Brett Ewing and S. Lance Mitchell and do not represent those of Centaurus Financial, Inc.
Do or Die Time for Emerging Markets
- After falling for nearly two years because of a liquidity crisis stemming from an exceedingly strong US Dollar some Emerging Markets have started perking up of late
- The financial media has been behind the curve for most of the drop and we have just started seeing liquidity crisis articles in the past 3-6 months
- During the drop, which saw a peak to trough fall of nearly 40%, markets priced in multiples similar to the Asian financial crisis of 1997-1998 & The Great Recession of 2008
- In 2015 Emerging Market countries saw the highest capital outflows in almost 30 years
- According to the BofAML Fund Manager Survey the sector is the most underallocated it has been since the end of the Asian Financial Crisis & Chinese growth expectations are the lowest since the Great Recession
- Despite the sector not making a new high since 2007 & all the negative sentiment things have started to change in 2016
- Emerging Markets are positive in 2016, something that the U.S., Europe, nor Japan can claim
- A large left for dead old stalwart of the EM index, Brazil, just peeked its head above the 200-day MA for the first time in nearly two years
- According to the IIF EM capital flows have now turned positive inexplicably changing the course of what looked to be years of coming outflows
- After hints of the FED being forced to delay rate hikes the dollar paused, which sent commodities sharply higher, benefiting many of the EM producer nations & proving even a resting dollar causes rips higher
- China & the PBOC have stepped up to help, announcing a new infrastructure stimulus package which should help commodities & cutting reserve requirements for banks which should free up liquidity
- We believe “peak pessimism” has been reached & the liquidity crisis is nearing an end—not the beginning—as some financial media would have you to believe
- Places like Vietnam, whose government is very welcoming to many sectors & emphasizes manufacturing, should be a place that could see great growth in the years to come
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