Emerging Markets acting like a rubber ball
Pfäffikon SZ, Switzerland – Slowly the global markets are beginning to sway in the wind. Cheap money that investors acquired from the FED is now being withdrawn from emerging markets. The currencies of these countries are starting to bounce like rubber balls. This puts central bankers on the spot. A country like Turkey – a potential EU member – is playing with fire, and behaving extremely erratically towards its entrepreneurs and investors. Not to mention those foreign investors who are acting even worse. An over-night interest rate increase of 425 basis points is simply ‘not done’ and reminds me of a banana republic at best.
Hype
During my life as an investor, the so-called emerging markets have been regularly advertised and hyped. Until recently I heard all too often that Brazil and Argentina were ‘the place to be’; but I never did anything about that. During the 2010 Football World Cup in South Africa, this was the country of the future and the talk of the town. We did not directly invest there either.
I don’t invest like that. The roughly thirteen subsidiaries in which we invest help us to find out whether it is wise or interesting to be exposed to these regions. Last week, I was in Davos watching Bill Gates with admiration, as he spoke about his foundation and what he wants to achieve. A continent like Africa plays an important role. If Gates gets it right then the future is bright for Africa. But this will take some time. 2035 at the earliest, thinks Gates.
Mr Market is doing an excellent job
Meanwhile, the market continues to slide further away and every day investors vote on the way forward. My best friend, Mr Market, is doing an excellent job. And that provides many exciting opportunities for the investor who did his homework years ago. In my experience, there are two possible scenarios this year. The first scenario is that the current correction will be far greater than many people expect. This will result in 2014 ultimately providing a buying opportunity, and putting an end to hard times.
The second scenario involves the current correction happening within a few days and new ‘highs’ only occurring in the spring or summer. In the second half of this year, the whole game will start over because of rising interest rates in the U.S. and currency turmoil in the emerging markets. This time, the correction will be rough and fierce. In 1997, a small country like Thailand led the Asian crisis. The penny did not drop with investors until 1998, when the markets lost about 25 percent of their value in under four weeks. This fits nicely into the current timeline.
2014 has a long way to go
Keep in mind: 2014 has a long way to go and the lazy investor can discard any thoughts of an easy ride. 2014 will require much more of your knowledge, qualities and time.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
