Asian Emerging Markets 2014 – Detox Time
Asking me to write an EM piece for 2014 is like asking Justin Bieber to do opera. It struck me that it is perhaps just what the market needs – a different perspective. However, it does not pay to play the contrarian in times like these, illiquid times, manipulated times and troubled times.
My son and I were sorely in need of detox today, him with the discovery of the existence of PIMPLE and I, with a sore liver (and kidneys too) from all the holiday drinks. Thus, I marched out to grab my favourite juice detox ingredients which I will share with you – Apple, Pear (chinese), Cucumber and Carrot, in equal quantities and a dash of grated ginger which I usually omit.
With detox on my mind, I found myself thinking of Asian EM which does not seem to have a lot going for them at the moment with the exception of China that experts cannot seem to make up their minds on.
2013 has been a wake up call for EM in general and the mad gold rush of the past decade that propelled them to investment darlings has been exposed as a facade for the can of worms. Countries that are selling condos with first class facilities but no running water for the slums just beyond the walls, countries serving half the world’s IT needs with failing powergrids, countries that make our beloved smartphones with high rates of worker suicides.
Nobody really wants to know the truth, including myself. I am just grateful for my own life.
This will be a big year for Asia with 3 major elections coming up in Thailand (if it goes through), India and Indonesia.
Today we have Bangladesh going to a pretty shaky poll with pockets of violence. India’s current prime minister Manmohan Singh has already wisely announced his decision to quit after this year. Who would want to govern the can of worms ?
We all forget that EM countries are but babies in the game of capitalism and democracy. For instance, Indonesia has only been a democracy for the past 14 years and about to go into an election when their oil reserves are depleting, corruption still considerably rife and inflation still misbehaving.
From the outside, the money opportunities are all we care about and so, I noticed the election trends are GOOD. Malaysia had a big come back after the elections and guess which is the best performing Asian stock market this year ? Pakistan !! right after their elections. Karachi 100 is up 56.45% in 52 weeks to date and is going strong, matching the Nikkei move ! The Pakistan rupee is about 10% weaker for the same period.
Pakistan – Karachi Stock Exchange and the PKR, Pakistan Rupee
Malaysia – KLCI and the USDMYR
If we examine anecdotal evidence from Philippines in Thailand from the year before and their election euphoria, the results would be the same. Thailand and the Philippines have been global investment darlings.
The world is just looking for a reason to buy and the reasons to buy in 2013 have been stability and change. In 2013, we have the highest turnover in CEOs since 2008. http://www.businessweek.com/news/2013-11-26/microsoft-to-wal-mart-shifts-show-ceo-change-fastest-since-08
Political instability has cost Thailand dearly of late, as evidenced in their local market and currency distress since protests resumed after a 3 year calm.
The reports may blame all they want about the deficits and infation but India did not suffer after their state elections and that is a sure sign. In fact, the INR defied the odds of both the deficit and their CPI to close the year on a strong note, even as the Sensex took a tumble in the first 2 trading days of 2014.
Fast money has short memories and statistics show that memories are about 5 days old as of 2010, with the average holding period of equities dropping to that time frame. Thus, hot money is the key.
And the key for 2014 ?
Gunning for the reasons to turn long – political change or stability. If I were the incumbent leader, it would be wise to go long stocks and go for an electoral defeat ? and then, possibly consider emigration for the family ? (said in jest, of course) EM and EMigration both start with EM and the truth is, while no one outside really cares about another garment fire in Bangladesh, no one really wants to live there too, in general.
Gun for the political euphoria gone stale – Philippines and Thailand. Gun for the political euphoria to come – Indonesia and India. And gun for the next global political powerhouse that comes with martial law – China. And for all the countries with martial law that would promise some stability – Vietnam, Myanmar, Russia.
And see where my ramblings have brought me to ? A slightly doleful outlook but all is not lost yet. Detox takes time to work and the party has been a long and hard one since QE began. We shall have to be vigilant and look for pockets of opportunity in this year of detoxification.
Postscript : This article was written for EZFX at http://www.ezfx.com.sg/market-views/