With Emerging Market debt, equity, and FX rates coming under significant pressure once again, 48-year-old veteran EM fund manager Stephen Jen has a message for the new breed of EM fund managers, brace for more pain. As Bloomberg reports, [8] with echoes of 1997-98's crisis at hand, Jen explains, "many [current managers] became EM specialists after the term ‘BRIC’ was coined in 2001 and don’t know any serious crisis," adding "they are about to be schooled."
The hopeful bounce early this year after the Taper Tantrum collapse last year, has once again disintegrated....
[9]
Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia.
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If the 48-year-old native of Taiwan, with a PhD from Massachusetts Institute of Technology, sounds a little jaded now, it’s not without some reason. He says he worries that many emerging-market analysts are too young to remember the late 1990s. Instead they learned the ropes in an era dominated by the rise of Brazil, Russia, India and China -- a supposed one-way bet to prosperity.
“Many became EM specialists after the term ‘BRIC’ was coined in 2001 and don’t know any serious crisis,’’ says Jen, who now runs the London-based hedge fund SLJ Macro Partners LLP.
The youngsters are about to be schooled. Jen says echoes of 1997-1998 may be at hand.
Investors woke up today to Russia’s 1 a.m. interest-rate increase to defend the ruble. There’s the mounting likelihood of a Venezuelan default. Stocks from Thailand to Brazil are reeling. The Fed hasn’t even begun raising interest rates.
Jen is bracing for more pain.
“At some point, the risk of fractures in parts of EM will rise sharply,” said Jen.
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“My long-standing view on EM currencies is that they could melt down because there has simply been way too much cumulative capital flows,” said Jen. “Nothing the EM economics can do will stop these potential outflows as long as the U.S. economy recovers.”
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We suspect this is the case for many fund managers currently who have been around a fe wshort years and experienced nothing but a market where every dip is to be bought...
[10]
Every year looks like an EM crisis as we see above, yet ever year it's rescued in the minds of 'young' managers. What Jen fears is the melt-down a la 1997-98 that none of the new breed have experienced.
