Take on emerging markets – deciders perspective

As there have been some strong movements in global markets in the last few days, here are my thoughts

For emerging markets: The strengthening of USD and increasing interest rates mean:

  • -> weakening of emerging markets currencies
  • -> so commodity prices in the emerging world shoot up
  • -> so cost to companies increases (for example, the price of oil)
  • -> so lower profits are anticipated
  • -> so Sensex drops.

Some additional observations:

  • Defensive sectors are picking up – healthcare, energy, industrials, utilities: people are moving to safe assets.
  • The American dollar is going up!
  • The gold price has done well in emerging markets.

Mainly notes for myself on investing in emerging markets (these are just thoughts, not advice; take this rants at your own risk):

  • Safe investors: This is the time to be in cash or money markets (it was not sexy, now it is – 2%)
  • Risky investors: If you have the ability to short without a lot of leverage, it might be worth trying small caps that ran too far.
  • Market neutral long large cap, short small caps.
  • Gold is only advisable in emerging markets with conviction.
  • If you want to stay in stocks, rotate to safer sectors like healthcare, utilities.

Preserving your capital is more important than anything else in such times.

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