GOOD NEWS OR BAD NEWS = BAD NEWS FOR EM

The outflows are slowing but INR is stumping the world to a new record of 65.56 yesterday and Indonesians are rushing to buy gold now.

     Aug. 23 (Bloomberg) — Gold jewelry demand in Indonesia is
set to expand to a four-year high as consumers in Southeast
Asia’s biggest buyer join India to China in increasing purchases
as prices slump and the middle class expands.

Good news out of China PMI yesterday bought the rest of Asia some time but MYR is now touted as the next domino to fall and the KLCI  down 1.4% on the day. The Philippines was the worst performer at 5.96% down.

German PMI was another piece of good news which led to further respite for EM into the US open and the strong rally back in the S&P on the excuse of the dovish FOMC minutes as well as the jobless claims number, ignoring all taper headlines and the strong Kansas city Fed manufacturing activity index.

And so the conclusion remains that good news or bad news is bad news for us in Asia (ex Japan and China). With even Nobel laureate Paul Krugman, who is so furiously defending the QEs, now calling the BRICS Generation B for Bubble !

http://krugman.blogs.nytimes.com/2013/08/22/generation-b-for-bubble/

Thus the outflow trend will remain intact, foreign reserves are dwindling by the day as currencies weaken, and we have a stimulus package out of Indonesia today.

It is starting to feel like the region is still in the midst of discovering a new equilibrium in a taper environment. The panic is only contained by the strength of the G3 recovery and their stock markets. China is looking like its complete disassociation with the rest of Asia is doing her good and outperforming in this round.

The good news is that banks are now starting to send out reports with buy recommendations for Asia, mostly Korea and China at the moment. SEA will continue to be shunted from it for now. Local funds have been fleeing their shores and will possibly look to return home once the hullabaloo has died down yet inflows would be anemic compared to the repatriations that have occurred.

“http://www.ft.com/cms/s/0/fe21614a-0afe-11e3-aeab-00144feabdc0.html#ixzz2clUnf477
FT : Indonesia has lost 13.6 per cent of its central bank reserves from the end of April until the end of July, Turkey spent 12.7 per cent and Ukraine burnt through almost 10 per cent. India, another country that has seen its currency pummelled in recent months, has shed almost 5.5 per cent of its reserves.
Central bank reserves are held to act as a safety buffer against turmoil, and are on average still far larger than during past emerging market crises. But the pace of the drops have spooked some investors and analysts.
Many central banks are likely to have suffered further reserve depletion in August….”

Citibank came up with the BIITS – Brazil Indonesia India Turkey and South Africa, as the vulnerable trades. They recommend underweighting MYR, IDR and THB against KRW in their latest strategy piece and suggest that further volatility lies ahead.

My safe haven trade would be Gold. with a target of 1425, the previous top in May. It has rallied unnoticed in the past fortnight, and looks poised for a leg up from its 100 day moving average vantage point now. Now that the vaults in Europe and US have been emptied and Paulson has cut half or more of his position, the only folks to squeeze would be China ?

Intellectuals scoff at me and I suffered in April too. Now its time to make a stand and like I said, Gold is almost like a religion, believers vs non believers.

I am looking for a pull back to 1325-1350 to buy in the next few days. This time I think most of my critics will be too tired to disagree.

The other trade I am looking at is China and SHCOMP which has underperformed in the past 2 years. The SHCOMP and S&P 500 has converged to a 5 year low.

China will be slowing but shows all signs of getting her act together. There are green shoots emerging in the recent economic data. So am putting China back on the radar.