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This Is What Capitulation Looks Like, EM Positioning Is Most Extreme On Record
In the week since China shocked the world by devaluing the yuan by the most on record, emerging markets - already beset by falling commodity prices, sluggish Chinese growth, a looming Fed rate hike, and a number of idiosyncratic risk factors both economic and political - descended into chaos.
On Friday we documented a Malaysian meltdown which saw the ringgit slide to its lowest level since 1998 as a $10 billion bond maturity aggravated an already precarious situation, sending the country’s currency, stocks, and bonds into a tailspin.
Brazil faces both economic and political crises as a nasty bout of stagflation and ballooning deficits portend further pressure on the real while calls for the impeachment of President Dilma Rousseff have reached a fever pitch.
In Turkey, the lira is plunging to new all-time lows against the dollar and bond yields are spiking as the central bank’s failure to address claims that it isn’t prepared to cope with the normalization of monetary policy in the developed world only served to make a bad situation worse as the country faces a political crisis and an escalating civil war.
Finally, in Indonesia, trade collapsed in July, with imports and exports falling 28% and 19% respectively as the country’s central bank is caught between a plunging rupiah (which is nearing multi-decade lows) and the effects of Beijing’s devaluation (reduced export competitiveness and an increase in the price of goods China imports).
And these are but a few examples.
In short, the path ahead is riddled with exported deflation (incidentally, Indonesia may have a cushion here as it’s the only Asia ex-Japan economy not coping with PPI deflation) and decreased trade competitiveness for a whole host of emerging economies and all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic.
Given the above, it should come as no surprise that fund managers’ positioning on EM relative to DM is the most extreme on record as shown in the following chart from BofAML’s global fund manager survey.
And as you might have imagined, sentiment towards EM has deteriorated markedly since last month:
While relative to history, the space is underowned - by a lot:
For their part, BofAML is taking the contrarian angle, recommending a long EM (and commodities) position going into Septemeber.
Consider that, then consider everything said above, and trade accordingly. Or don't.
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I dont care what BofAML thinks. I want to know what Gartman thinks!
If the dollar has further correction left in her (I think so), then this would probably be a good short-term contrarian signal.
Apparently, no one noticed the 6% drop in China's market last night. I'm sure, tomorrow when Beijing runs it up 6%, it will suddenly be news.
I noticed.
Oriental Whack-a-mole. As soon as they turn their back on one crisis to deal with another, up pops Mr. Holy Moly again.
Soon they'll be popping up two at a time, which might still be manageable as long as you got two mallets.
But then three or four begin coming up together.
Future financial history on six continents.
.
Capitulate, bitchez!
http://www.paulcraigroberts.org/2015/08/17/fbi-evidence-proves-innocence...
There has always been winners and losers, but the countries that are being hurt worst has no say in the matter, but they are chips on the table in the game of superpower poker. "World economy" are not buzz words but people trying to survive the best they can.....
Soooo.... buy gold. Got it!
What is the underlying value here right...? Oh wait, they never explain that. Everything in the world is about a value play when it sells for a price (like markets do). Who gives a damn if they think a little squigly line is going to go up... SHOW ME THE VALUE! : )
Isn't value what your willing to pay for something?
Price is what you pay, value is what you get right? : )
Indeed if you want something bad enough, so bad you can taste it and will pay any price for it to me is value :)
Is most extreme on record...GOING BACK TO 2001. Basically had a decade of tailwinds in EM, and now could easily be a decade of headwinds. I wouldn't want to fade this move on nothing more than "overly bearish sentiment."
'looming Fed rate hike'
So he's being funny...a jokester...YOU'RE KILLING ME SMALLS!!!
Prepare for the coming fed rate cut, probably in December or March... plus QE-more or QE-eternity.
Remember, the fed rate is 0.00% to 0.25%, so they can lower it... to a flat 0.00%... without going negative.
I would be checky short SPX here