Wednesday, October 03, 2007

Emerging markets: an exhilarating, but potentially lethal, ride

This chart is worth a look...... Especially when the Hang Seng is losing 6 percent since yesterdays intraday high.... And Mark Faber is raising a read flag on EM

Dieser Chart ist zumindest einen Blick wert..... Das gilt besonders wenn zur gleichen Zeit der Hang Seng binnen zwei Tagen vom Hoch mehr als 6 Prozent verliert...... Mark Faber ist ebenfall nicht sonderlich positiv gestimmt

Emerging markets: an exhilarating, but potentially lethal, ride
Out of one bubble and right into the next. John Authers earlier this week pondered whether the stampede towards markets following the Fed’s gift to stock markets was just creating another thing to go pop down the line.

Now Jonathan Garner at Morgan Stanley, which has been leading the charge on economic decoupling of emerging markets from the US, has gone a bit cold as well. Holding a tiger — let alone a dragon — by the tail is a recipe for an exhilarating ride, but potentially lethal should it turn and bite, he notes in a report which advises investors to take some profits at this stage

This is what happens when everyone suddenly agrees with you - the bulls are suddenly feeling nervous now they seem to be occupying consensus ground. The MSCI Emerging Markets index is up 23 per cent since Garner advised investors to pile in back in August, hitting a new all-time high earlier this week.


Valuation is also an area of concern, he adds. Trailing pe ratios have risen to 18.5 times, about 12 per cent above the 15 year average and 10 per cent ahead of where valuations are globally.

Finally, Garner cites a reason for caution that he argues seems to be under-appreciated by investors - Chinese valuations.

The country accounts for almost 16 per cent of the MSCI EM index - and a share sell off, say Morgan Stanley, in A or H share indices, would raise “substantial question marks over China’s growth momentum.” The bull market in China has deep underpinnings, they argue, but since the analysts warned that it was dangerous to turn bearish on China too soon back in April, the A-share index has risen by 66 per cent. The market is now challenging highs seen at the top of the 1999/2000 bull run with PEs in the high 50s. Both the Hong Kong and mainland China markets are on the point of moving into uncharted territory versus their own history, says Garner.

Handle with care then. As the analysts would have it, not all bubbles end in recessions (but most do.)

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3 Comments:

Blogger jmf said...

Hong Kong Hang Seng Index down 2.4% in final half hour

Hong Kong's H-share index down 3.9% in late trade

12:38 AM  
Anonymous Anonymous said...

Keeping to my recent 'devil's advocate' stance, it is worth keeping in mind that these 'hiccups' have occurred in the past during this bull phase, and the markets have always recovered to power higher. These corrections are really tiny compared to the uptrend that's been in place for a long time now. People who've been invested in emerging markets, and have held their nerve through these blips, have made a lot of money. And until that trend is well and truly broken, it seems like you want to have some money in emerging markets, although you are starting to see signs, i.e. nervousness, that may indicate people sense we're at or near a top. But then emerging markets have always been seen as riskier -- caveat emptor.

eh

1:00 AM  
Blogger jmf said...

from the Faber link

There is no doubt that we are dealing with bubbles in China and in India, Faber warns. Can these bubbles be inflated by another 100 per cent? “Possibly, if Taiwan and Japan in the 1980s serve as a model.”

I promise if these markets are roaring to theses level i´ll put in my first EM short ever :-)

1:54 AM  

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