I'll never make it, it will never happen, because they're never going to hear me 'cause they're screaming all the time.
-- Elvis Presley
I’ve made it a point in recent writings to show that there is a clear change in tone happening in the emerging market space. Indeed the equity side of the equation has been rather poor in 2014 so far, as money wants out of last year’s laggards and crisis rhetoric continues. Some are claiming that we are in the midst of another taper tantrum like what occurred in May-June last year, which resulted in a complete collapse in anything foreign-denominated. Yet, this time around it is only the equity side that is acting poorly. Emerging market debt continues to show very real resilience despite Fed tapering.
Bullishness is not only creeping into the debt side, though. As my Director of Research, Charlie Bilello, pointed out, as much as people are bearish on emerging market stocks, they are even more bearish on emerging market currencies. Is this justified, especially when inflation expectations are showing some signs of life?
Take a look below at the Wisdom Tree Dreyfus Emerging Currency Fund ETF
(NYSEARCA:CEW) below. Note that the ETF appears like it may be nearing its prior downtrend and, like debt, is acting resilient, post-taper.
There is something else that's important to consider here. Emerging market currencies collapsed during the summer crash of 2011 (deflationary), the April-May correction of 2012 (deflationary), and the May-September period of 2013 (deflationary). With inflation expectations starting to rise at the same time the ETF is nearing support, the time seems right for risk-taking to increase, not decrease, in foreign-denominated assets.
Could the most recent period of weakness in stocks simply be a shaking out of weak hands? The complete lack of confirmation in those areas of the asset-allocation spectrum most sensitive to a crisis are simply screaming that a major opportunity is yet to come in Brazil (represented by the iShares MSCI Brazil Index ETF
(NYSEARCA:EWZ)), Russia (represented by the Market Vector Russia ETF Trust
(NYSEARCA:RSX)), India (represented by the WisdomTree India Earnings Fund ETF
(NYSEARCA:EPI)), and China (represented by the
iShares FTSE/Xinhua China 25 Index ETF (NYSEARCA:FXI) at the same time bearishness remains unrelenting? While my firm's ATAC (Accelerated Time and Capital) models used for managing our mutual fund and separate accounts aren’t there just yet for a trade, the moment may soon come by February where maybe, just maybe, the trade I believed would win out last year finally comes to fruition.
After all, patience does pay…
No positions in stocks mentioned.
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