31/08/18

Weekend Reading: Are Emerging Markets Sending A Signal



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Weekend Reading: Are Emerging Markets Sending A Signal
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Authored by Lance Roberts via RealInvestmentAdvice.com,

I have been, and remain, bearish on emerging markets for three reasons:

  1. As discussed yesterday, the U.S. is closer to the next economic downturn than not. When the U.S. enters a recession, emerging markets are hurt considerably more given their dependence on the U.S. 
  2. International risks in countries like Turkey, Greece, Spain, France, Italy, etc. 
  3. A strong dollar from flows into U.S. Treasury bonds for a "safe haven." 

I recommended in January of this year to remove all international and emerging market exposure from portfolios and have been updating that position since each week in the newsletter:

"Emerging and International Markets were removed in January from portfolios on the basis that "trade wars" and "rising rates" were not good for these groups. With the addition of the "Turkey Crisis," ongoing tariffs, and trade wars, there is simply no reason to add "drag" to a portfolio currently. These two markets are likely to get much worse before they get better. Put stops on all positions."

This has been the right call, despite the plethora of articles suggesting the opposite.

For example, in January, Rob Arnott stated:

"Look at value in emerging markets. In the U.S., value is trading about 25% cheap relative to the ....

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