ARE YOU SHORT CHINA [AND OTHER EMERGING MARKETS] YET?

Takeaway: The case for shorting Chinese financials stocks, frontier markets and EM LC and USD debt is becoming stronger by the minute.

SUMMARY BULLETS:

 

  • Next Wednesday, June 12th at 11AM EST, we will be hosting a flash call titled: “Are You Short China [and Other Emerging Markets] Yet?”. The format of the call will be as follows: 10-15 minutes of prepared remarks and 10-15 mins (or more, depending on interest) of live Q&A. Specifically, we are now adding the following four ideas to our Best Ideas list and we will detail exactly why on next week’s call: Short CHIX, Short FRN, Short EMLC and Short EMB.
  • In addition to these latest editions to our Best Ideas list, we are content to “book” the gain in our EEM short call. The ETF is down -2.6% since we introduced the idea on our 4/23 conference call titled: “Emerging Market Crises: Identifying, Contextualizing and Navigating Key Risks in the Next Cycle”.
  • While 260bps may not seem like all that much, we were able to extract a considerable amount of alpha from the position – particularly relative to our favorite equity market (USA); the EEM ETF has underperformed the SPY by a whopping 693bps since we introduced the thesis. While we still think there is room for this spread to widen, we are focusing our sights on the aforementioned new tickers, as we seek out more “juice” amid rising conviction in our views (see: Stanley Druckenmiller’s mantra on “spreading your wings”).

 

Next Wednesday, June 12th at 11AM EST, we will be hosting a flash call titled: “Are You Short China [and Other Emerging Markets] Yet?”. The format of the call will be as follows: 10-15 minutes of prepared remarks and 10-15 mins (or more, depending on interest) of live Q&A.

 

Normally, we aim to provide more lead time to get our Black Books and conference calls into your respective calendars, but the recent volatility across Global Macro markets has provided us with a strategic opportunity to expand upon our #EmergingOutflows theme. To that tune, the $5.5B in EM equity fund outflows per the most recent week of data was the largest weekly withdrawal since AUG ’11!

 

Specifically, we are now adding the following four ideas to our Best Ideas list and we will detail exactly why on next week’s call:

 

 

As an aside, we like to use ETFs in order to #TimeStamp our positions, but for those of you whose funds are larger in size and require additional liquidity, we encourage you to express these views at the asset class level as well.

 

In addition to these latest editions to our Best Ideas list, we are content to “book” the gain in our EEM short call. The ETF is down -2.6% since we introduced the idea on our 4/23 conference call titled: “Emerging Market Crises: Identifying, Contextualizing and Navigating Key Risks in the Next Cycle”.

 

ARE YOU SHORT CHINA [AND OTHER EMERGING MARKETS] YET? - 1

 

While 260bps may not seem like all that much, we were able to extract a considerable amount of alpha from the position – particularly relative to our favorite equity market (USA); the EEM ETF has underperformed the SPY by a whopping 693bps since we introduced the thesis. While we still think there is room for this spread to widen, we are focusing our sights on the aforementioned new tickers, as we seek out more “juice” amid rising conviction in our views (see: Stanley Druckenmiller’s mantra on “spreading your wings”).

 

At any rate, if you plan to join us live next Wednesday at 11AM EST or plan catch the replay, we encourage you to review our 4/23 EM Crises presentation, as that will form the basis for our upcoming discussion(s):

 

 

Our sales team will be out momentarily with the dial-in details to the call; email if you don’t receive them by Monday morning.

 

Lastly, if you're getting bear'd up here, don't lazily join the consensus crowd that has been getting squeezed trying to short US equities throughout the YTD. Short stuff like Emerging Markets that A) have a legitimate bear case and B) will actually decline in value for more than 1-3 days.

 

Have a great weekend,

 

Darius Dale

Senior Analyst


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