The emerging markets bear trap (Part 3 of 4)
Where shouldn’t you invest in emerging markets?
Not all emerging markets are created equal—especially the BRICs! The main thing Brazil, Russia, India, and China have in common is the BRIC acronym itself… Each country has its own risks and prospects that should be invested accordingly. Investing in a BRIC ETF (BKF) at this point is more likely to yield losses or flat returns in a best-case scenario where any gains are offset by losses in another country.
So while I’m not advocating for shorting BKF, the idea here is to time the investment into each country accordingly.
The fundamentals for Brazil at the moment are terrible. I wrote a full article on this, so follow this link.
India is another sob story when it comes to growth. Stuck between a rock and a hard place, mainly with high inflation and low growth. The country has suffered significant currency exchange depreciation that has failed to give it a competitive advantage given its supply-constrained growth, meaning that power outages and lack of infrastructure prevent it from reaching its potential.
China is a mixed bag, given that its growth depends a lot on how fast the reforms are implemented and how much “targeted” stimulus the government injects into the economy. The last PMI was a story of crying wolf, where the final PMI was a point lower than the Flash PMI. The market has increased significantly on volatile data, but the credit and housing bubbles are still there, waiting to make an epic pop.
Where you should invest
So where should you invest? Read on to find out.
Browse this series on Market Realist:
- Part 1 - Why the past 9 months led emerging markets to their current state
- Part 2 - Key factors that continue to affect emerging markets
- Part 4 - Must-know: Emerging market investments you should pursue