#EmergingOutflows Reversal Risk Management

Takeaway: We now find it prudent for investors to broadly cover their shorts in/across the emerging market space.

We arrive at the aforementioned conclusion for the following three reasons:

 

  • We have identified three key top-down fundamental factors that drive the bulk of EM asset price performance and, at the margins, these factors are becoming less bearish.
  • While the preponderance of our quantitative signals does not yet support going long EM asset beta, there are enough signals underneath the hood that support a continuation of the developing relief rally across EM assets.
  • Should this relief rally continue, our analysis shows that it is likely to continue to be led by the most risky economies and securities. As such, we are covering all of short ideas in the EM space and booking the gains in our [defensive] long ideas as well. The conclusion: we are taking down our hypothetical gross exposure to this asset class amid what may (or may not) turn out to be a bearish-to-bullish phase transition.

 

CLICK HERE to download our 20-slide presentation which contains the supporting analysis behind these views.

 

Have a wonderful evening,

 

Darius Dale

Associate


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