Emerging Markets – Page 2 – Harlyn Research LLP

Time to Separate China from EM

Friday, August 13th, 2021

EM ex China has begun an interesting rally

We think it is time to take China out of the main EM equity indices. Some of the arguments made for its inclusion are no longer valid. It doesn’t make sense to have separate benchmarks for companies listed in China and Hong Kong. Separate indices for China plus Hong Kong and the rest of Emerging Markets would increase flexibility for all investors, not just those who no longer wish to have passive exposure to the current regime in China. Once we make the split, we can see that EM ex China has already begun an interesting rally.

Filed under: Categories: China, Diversification, Emerging Markets, ESG, FX rates

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The China Question

Friday, July 30th, 2021

China’s problem may be Europe’s opportunity.

Our recommended weight for Chinese equities has just hit its all-time low since the beginning of this century. They have been in extreme underweight territory for their longest period ever. We think this is more than a temporary misunderstanding. It could represent the breakdown of the pro-China consensus that has dominated US investment thinking for over a decade. There may be parallels with what happened when the US became disillusioned with Russia 10 years ago. US investors who want international equity diversification will be forced to have another look at Europe.

Filed under: Categories: China, Emerging Markets, Geo-Political Risk, Global Equities, Market Timing

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Fizzing or Bubbling?

Friday, January 29th, 2021

The immediate danger lies in Asia, not the US

Everyone is suddenly on bubble alert, but our numbers suggest that the main danger lies in Asian equities, not the US. China, Hong Kong, Taiwan, Korea, India, Japan, Australia and Indonesia all have weekly RSIs above 70%, which is our warning signal. US equities are still below this threshold, apart from Small Caps, which broke above it three weeks ago.

Filed under: Categories: China, Emerging Markets, Equities

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10 with 10% in China

Friday, October 30th, 2020

Push and pull factors suggest that the timing is right

We think that global equities could be on the cusp of switching to a new big idea, moving out of US Technology and into something else. It may be US infrastructure, depending on who wins the election and controls the Senate, but the growth of the Chinese consumer has been thrown into sharp relief by the relative impact of Covid on China vs the West. Oil at $35/bbl is a significant stimulus and a similar idea (overweight in EM Equities) worked very well in 2002-05. We have a big overweight on both Consumer sectors in China and we highlight 10 consumer-related companies in Europe which derive more than 10% of sales from mainland China.

Filed under: Categories: China, Emerging Markets, Market Timing

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No Read Across in EM

Friday, May 15th, 2020

Don’t treat Asia like Latin America

Concerns about the credit quality of EM Bonds are rising. Some of the countries often cited are frontier, rather than emerging markets, but the concerns are well-founded. For us, the key difference from other bond categories is that the Fed won’t be buying them. We don’t think there is a read-across to EM Equities, which are now less volatile than the US, mainly because the major Asian economies have dealt with the virus better.

Filed under: Categories: Emerging Markets

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One Disease; Three Themes

Friday, April 3rd, 2020

Consensus is looking for mean reversion in the wrong place

Three interesting ideas emerge from our regular reports. First, the volatility shock will almost certainly be as bad as 2008. Second, we believe that a long Technology /short Energy trade will have a positive pay-off no matter whether equity markets rise or fall. Third, our models are increasing exposure to EM Equities. We recognise this is a contrarian trade, but it is well-supported by our process and doesn’t depend on one or two countries.

Filed under: Categories: Emerging Markets, Energy Prices, Equities, Technology, Volatility

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Asia: First In, First Out

Thursday, March 19th, 2020

Already producing better risk-adjusted returns

The recent volatility shock is as big as the one in the middle of the GFC and it isn’t over yet. It has also happened three times faster, in three weeks rather than nine. Fear is inevitable, but the are some interesting opportunities, especially in Asia. Countries like Taiwan and South Korea have managed the corona virus better than the US or Europe, while China is already recovering. If you wait for the bounce in the West, you may miss it in the East.
There

Filed under: Categories: China, Emerging Markets, Global Equities, Japan, Market Timing, Risk-Adjusted Returns, Volatility

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EM Bonds: the new safe haven

Friday, March 6th, 2020

Higher yields and lower volatility

Many investors, brought up on the Tequila crisis of 1994, or the Thai baht crisis of 1997, or others too numerous to mention, may be surprised to see EM Sovereign Bonds at the top of our euro asset allocation model and at #2 in the US$ version. Times have changed. The volatility of the EM bond portfolio (but not necessarily individual countries) is less than 7-10 year Treasuries and the yield is a lot higher. They deserve their ranking.

Filed under: Categories: Emerging Markets, Geo-Political Risk, Volatility

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Where Have All the Leaders Gone?

Thursday, November 21st, 2019

And why does nobody like Japan?

Two weeks ago, we had the lowest number of net buying opportunities for individual countries since May 2000. It’s hard to be bullish about global equities as an asset class when there are so few leaders. Japan is one of just three countries which look attractive on our system, but nobody seems to care.

Filed under: Categories: Diversification, Emerging Markets, Global Equities, Japan, Market Timing, Rotation

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Equal and Opposite Signals

Thursday, October 24th, 2019

Crossover for EM Equities and EM Bonds

The macro picture remains confused, so we are reduced to talking about signals which may appear in the near future. On present trends, we expect EM Equities to overtake their moving average and EM Bonds to drop below theirs. Both are measured relative to the equity and fixed income models as appropriate. At first, the switching opportunity would be for EM specialists, but it may develop wider significance.

Filed under: Categories: Emerging Markets, Equities, Government Bonds, Market Timing

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