Emerging Market Quotables (May 15, 2017)

Actionable emerging market investing quotes from http://www.emergingmarketskeptic.com

May 14, 2017

Also check out our emerging market ETF lists, ADR lists and closed-end fund lists along with our general investing tips / advice.

Why a Financial Crisis is NOT Brewing in China (Institutional Investor)

“China is never having a 2008 crisis. I don’t think it’s going to happen… When you are running current account surpluses of $550 [billion] and $600 billion annually, it means you are in control of your banking and financial system.”Note: In the run-up to the global financial crisis, the U.S. had an account deficit of about 5% of GDP. Paul Schulte, CEO of Schulte Research International

“The U.S. markets are trading at three times book value. Asian capital markets are trading at 1.6 times book value. If the markets are going to collapse, which is what many are predicting, Asia has to get more expensive first.” Joshua Crabb, the head of Asian equities for Old Mutual Global Investors

Mexico Could Still be a Winner if NAFTA is Retooled (CNBC)

“Regionally, North America is almost energy independent, reducing dependency on hostile powers. Importantly, two elements of NAFTA’s renegotiation could boost both energy supply and demand in North America… On the one hand, increased Mexican content in tax-free exports to the U.S. would lead to more Mexican industrial activity and more U.S. natural gas demand in Mexico… On the other, Mexico’s energy reform presents a substantial opportunity for U.S. energy, technology, and infrastructure companies. So NAFTA stays and the world’s largest energy compact emerges from it, in our view.”

Bank of America-Merrill Lynch recently noted.

“If financial markets get tired of thinking about trade policy as it relates to the peso, they may discover that the economic fundamentals underlying the currency have weakened in the last 12 months as U.S. fundamentals strengthened.”

William Adams, senior international economist at PNC Financial Services Group

This Is What Can Kill the Emerging Market Rally (Bloomberg)

A drop in oil prices and China’s crackdown on leverage – spurring this month’s rout in industrial metals and iron ore – is setting the stage for a correction in developing-country assets, according to a growing chorus of investors and analysts.

“Sell the strength. When the rally cracks in the weeks ahead, investors should establish short positions because the potential downside will be considerable.”

Arthur Budaghyan, a strategist at Montreal-based BCA Research Inc.

“Flows have been rotating out of U.S. high-yield debt and into emerging markets, which has papered over the vulnerability of emerging markets to higher rates, a stronger dollar and weaker commodities.”

Ed Al-Hussainy, a senior analyst on Columbia Threadneedle Investment’s global rates and currency team.

Have Higher-Yielding Emerging Markets Peaked in Value? (SCMP)

“Spreads on emerging-market corporate bonds are currently at their tightest level since the global financial crisis, particularly in the Asian high-yield, or non-investment-grade, segment of the market.“

"With markets already priced for perfection, the scope for further gains is limited.”

“Emerging-market asset prices may have already peaked.”

Nicholas Spiro is a partner at Lauressa Advisory

Peak Emerging Markets Heave Into View (FT)

Sharp rally in emerging market assets raises questions over whether we are near the cycle’s high point. We may not yet be at peak EM, but its looking close.

Kevin Daly, an EM debt specialist at Aberdeen Asset Management, expects US protectionism to be back as a threat to EMs in the second half of this year — in a word, soon.

Should You Still Buy Into the Emerging Markets Rally? (International Adviser)

“We remain positive on emerging market equities and Pacific ex-Japan, partly due to Chinese economic strength. Improving growth and moderate inflation across other emerging markets are also lending support to the asset class.”

Luca Paolini, chief strategist at Pictet Asset Management.

“Emerging markets have done so well because of the stability in China. China drives the bus, and most Asian [export-led] economies are tied to China… Chinese authorities have gone back to old methods, allowing more leverage into the system and taking temporary measures for the sake of stability. But this doesn’t mean China will expand in a meaningful way going forward.”

“Trump’s America First approach doesn’t bode well for Asia. The risk for Asian economies is that most of these countries depend on external demand… Therefore we prefer countries with different supply chains than [export-dependent] Korea and Taiwan, and favour domestically driven economies such as India and Indonesia. The Indian economy has in fact a very low correlation with the US. Interest rates for example have come down there this year while the Fed started hiking.”

“Asia has developed its own investor base in recent years. 90% of EM dollar issuance is done in Asia now, for Asian investors”

“Don’t count on the Fed ensuring stability in emerging markets. Trying to do that for the US is already hard enough.”

Neal Capecci, co-manager of the Manulife Asian Bond Total Return Fund.

DoubleLine's Gundlach: Short the S&P, Go Long on Emerging Markets - Emerging Market Skeptic

“When emerging markets outperform the S&P 500, active is outperforming the S&P 500.”