Next Up: Emerging Markets Re-Route

Now that commodities have firmly sold off and stocks in general are on the brinck of a possible fierce correction, investors are looking for new havens to park their liquidities.

We have been closely monitoring the investment arena over the last weeks to see where new money is being put.

Overnight, we received some very interesting news on what Asian hedge funds are up to. Zen Investment Management, a Shanghai-based hedge fund that was huge in commodities as of late, and therefore outperforming 99% of its competitors,  seems to be shifting gears… towards Emerging Markets!

Via Bloomberg:

The Zen Macro Strategic Fund may purchase equities in Asia including Hong Kong and India because falling commodity prices will reduce inflationary pressure, Jacky Cheung, chairman of Zen Investment, said in an interview at its offices in Shanghai on May 16. China’s financial and power companies are attractive because of valuations, he said, without naming any.


“With the decline in investors’ risk appetite, the commodities market may not have hit bottom yet,” said Cheung, 41. “Equities will be very good investments in the second half and next year.”

With the recent commodity sell off and the tightening measures in various Asian countries, Zen thinks inflation could start to ease in this growth area, which could kick start Emerging Markets stocks again.

As can be seen on the chart below, Asian stocks have been underperforming in 2011, mostly trading in negative territory. Commodities (CRB) were the darlings of traders… until recently!

If we take a closer look at the Asian Emerging Tigers, the biggest players — China & India — have underperformed substantially over the last year!

As a result, Emerging Market valuations took a big blow:

China’s stock measure trades at 13.2 times estimated earnings for this year, compared with a multiple of 19.9 over the past four years, according to weekly data compiled by Bloomberg. That compares with 14.4 times for India’s Bombay Stock Exchange Sensitive Index, 11.1 for the MSCI Emerging Markets Index and 13.4 for the Standard & Poor’s 500 Index.


“Given’s Europe’s debt crisis and declines in commodities, China is more likely to relax tightening policies than intensify them in the second half of the year,” said Cheung. “The current valuation of stocks is really low. There’s a big probability that stocks will have a decent rally.”

Be sure to have some money positioned in Emerging Markets if the new big liquidity wave hits the Chinese and Indian stock exchanges.

>>> The Emerging Markets Report

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