Mainly because an under reported consequence of the US weak $ policy is that it squeezes margins in EM. Most EM firms are operating on margins far narrower than developed nation firms, they are also having to content with very high commodity prices. In addition I think the US consumer is on its last legs as far as buying power goes as indicated by the recent rise in consumer debt. Consumers are unable to drawn on their home equity and are now using high interest CC to mantain their lifestyle, resets are likely to add to this trend. The fall out from housing and credit problems are going to be felt in the next three-six months and they will slow the GDP growth significantly more than people are expecting. Why The EMM, because as we drift in to recession I feel that is where the highest RR lies, not in US equites which will be propped up by the weak $. US and Multi national companies earnings will not be as severely tarnished due to the currency effect that they will enjoy. Why now, this bullish euphoria manufactured on nothing more than an opening of the credit spigot is a good opportunity to add to the position. The risk is that I am early here hence the tight stop, though it may prove to be too tight.
Decision time- close the trade for a loss or hold on? Yes I know the stop was hit this AM on open but I didn't take it and I just added FXI short at 174.72 (looking for 145) All signs point to an end of the run for EM and China but as history shows the end of the run is often when the most vicious rallies happen. Very tough to time and short. Will post if and when I decide I am too early on these trades, 148 was too arbitrary.
Im with you on the EM vs US. There is much greater potential for problems than the US. China is insane.
EMERGING MARKETS ARE EXTREMELY OVERBOUGHT!!!! DXESX is the way to go if you want to short the Emerging markets. UNDER $5.00 a share, minimum invest $25,000. Could easily trade as high as $7+ if there is a substantial correction.
I have family in Pudong that are getting almost DAILY calls from realtors looking to buy their high end condos (really townhouses but called condos, new condos built 3 years ago). The price is 2.5 times what they paid and 50% higher than calls they were getting a year ago. While occupancy has improved in their complex it is still only about 60%. These are places that are selling in the $700K range now. Average annual wage in Shanghai is $1K. Everyone is waiting until the Olympics or the World Fair to unload. In hindsight I think the smart ones will be the people who have sold 3 months before the Olympics at least. Also people don't realize that a) it is hard to take your money out of China, b) the government can make it much much ahrder than it already is. Infact investors should pretty much count on their money being trapped in China when the bubble breaks at China tries to keep as much investment from fleeing as it can. If you are invested in China make good freinds with a business owner that sells a lots of stuff to Europe, will be able to help you get your money out.
If you are limited to trading funds agreed, but otherwise the fact that it offers only EOD pricing is not good. Remember that the recent intraday low on the EEM was 111.41 yet it closed at 119 that day. Those in the DXESX lost out on a great deal of the downward move.
Agree with how much they lost intraday however there was a sizeable move in that 3rd week of August. The emerging markets are overbought, The next pullback will put EEM around 115-125 a share. For now if your long EEM, FXI etc hedging against those might be best with DXESX or UVPIX.