Emerging Markets....
Discussion
Having just checked my S&S ISA I've noticed that my Aberdeen Emerging Markets fund is on its arse. This is not a surprise given what's going on in the markets, I just have been a bit lazy of late and not checked. Anyway, news isn't good so this morning I was tempted to dump 50% of my holding (~£3k) at pretty much close to what I paid for it over the last few years.... then I remembered the old Buffett quote;
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
So given where the Emerging Markets are right now do I sell and be grateful that I've not lost anything or hold because they've fallen all they can or even sink some more cash in!
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
So given where the Emerging Markets are right now do I sell and be grateful that I've not lost anything or hold because they've fallen all they can or even sink some more cash in!
Last year I was in a similar position with a commodities fund I'm in which was tanking. I was tempted to just ditch it like I've done in a similar situation previously.
This time around I did a lot more research into the underlying holdings and the real market (not just the scary headlines). I took the view that as a 3 year+ investment it probably couldn't get much worse and that it should have a better future. I'm happier with being in it now as I've formed a proper judgement and rightly or wrongly I'm happy to hold it even though it's well down.
Form an opinion of your own - don't let the headline writers dictate your movements. There are actually some positive stories out there too.
This time around I did a lot more research into the underlying holdings and the real market (not just the scary headlines). I took the view that as a 3 year+ investment it probably couldn't get much worse and that it should have a better future. I'm happier with being in it now as I've formed a proper judgement and rightly or wrongly I'm happy to hold it even though it's well down.
Form an opinion of your own - don't let the headline writers dictate your movements. There are actually some positive stories out there too.
Sit it out now, you're otherwise making the same mistake many have before you, selling at the bottom only to put more money in later when markets 'look better' or in other words are more expensive and towards the top of valuations.
For what it's worth there's probably more downside to this correction, especially in EM, but if you're down one side of the big dipper better to stay on than jump off mid ride and miss the upswing.
For what it's worth there's probably more downside to this correction, especially in EM, but if you're down one side of the big dipper better to stay on than jump off mid ride and miss the upswing.
Edited by ellroy on Tuesday 4th February 20:56
Sit it out now, you're otherwise making the same mistake many have before you, selling at the bottom only to put more money in later when markets 'look better' or in other words are more expensive and towards the top of valuations.
For what it's worth there's probably more downside to this correction, especially in EM, but if you're down one side of the big dipper better to stay on than jump off mid ride and miss the upswing.
For what it's worth there's probably more downside to this correction, especially in EM, but if you're down one side of the big dipper better to stay on than jump off mid ride and miss the upswing.
Edited by ellroy on Tuesday 4th February 20:57
I guess it depends on your timeframe if your willing to leave it in there for the longterm it will bounce back at some point it's probably just panic for now. I wouldn't put more cash into it though, the problem as I understand it is over the last week or so a lot of money approx $6.3billion has been pulled out of EM.
The reason being that when interest rates dropped in the US/UK/EURO funds moved out to EM as interest was higher and therefore obviously your money was going to earn you more there than here. But with some of the recent events in the EM such as China slowdown, the shadow banking corruption etc combined with better US economic data and the Fed tapering, funds seem to have pulled their exposure to the EM, I would only assume as they think interest rates are going to climb in the developed markets and so no need to put their funds to that risk.
The reason being that when interest rates dropped in the US/UK/EURO funds moved out to EM as interest was higher and therefore obviously your money was going to earn you more there than here. But with some of the recent events in the EM such as China slowdown, the shadow banking corruption etc combined with better US economic data and the Fed tapering, funds seem to have pulled their exposure to the EM, I would only assume as they think interest rates are going to climb in the developed markets and so no need to put their funds to that risk.
Emerging markets, or submerging markets?
Don't be prescriptive about staying or going. What is right for you may not relate to the person who told you what to do. In principle, never good to crystallise a loss needlessly, unless you can mitigate and offset the downside quicker by doing something else. If you want to chuck more money in, and if EM are too risky anyway, why increase the risk and volatility you're exposed to? Don't blindly address the symptom, look at the cause(s) too.
Don't be prescriptive about staying or going. What is right for you may not relate to the person who told you what to do. In principle, never good to crystallise a loss needlessly, unless you can mitigate and offset the downside quicker by doing something else. If you want to chuck more money in, and if EM are too risky anyway, why increase the risk and volatility you're exposed to? Don't blindly address the symptom, look at the cause(s) too.
Before the recent shafting we all received E.M were sitting at lower PEs than the Developed Markets.
I would guess those valuations look even a bit better now
That doesn't make it a Buy, but to sell just because of disappointment is maybe not the right thing to do.
My EM fund is down 15% this year, but I've had it a while so still in profit, not a lot, but still marginally ahead of inflation.
I would not dream of selling it.
Partly because I don't see great place for the proceeds.
I think there is a better chance of China becoming more predictable than me guessing the right sector or region
Also the first quarter is often the most productive, usually a good time for commodities and E.M. should benefit.
I would at least stay with it 'til April.
I would guess those valuations look even a bit better now
That doesn't make it a Buy, but to sell just because of disappointment is maybe not the right thing to do.
My EM fund is down 15% this year, but I've had it a while so still in profit, not a lot, but still marginally ahead of inflation.
I would not dream of selling it.
Partly because I don't see great place for the proceeds.
I think there is a better chance of China becoming more predictable than me guessing the right sector or region
Also the first quarter is often the most productive, usually a good time for commodities and E.M. should benefit.
I would at least stay with it 'til April.
Chinese PE ratios are looking good/ better in some areas and longer term, the Chinese economy is seeking to restructure. Which sounds great, but alongside those reforms free market costs will go up as the market becomes more open and dividends drop. So.. if you are investing in growth as you have been doing these past few years, you'll possibly see not much good news. And yes, the Chinese New Year grinds stats to a halt!
But if we accept that things are better for investor reform agenda (Hokou urban registration system refers), if rural land use rights strengthened, if people are spending more (check out Chinese SUV purchase data, fellow PHers), where will the new growth come from? If you look at the value of (not privately owned growth funds which have done well) state owned assets which are having ownership wrestled from them, which ARE languishing, there might be long term much better good news.
China needs to get rich quickly, to support the (for it) rapidly ageing population and the boom in the middle class. If we look at the definition of an Emerging Market which refers to a set income per capita. Huge disparity between the rich and poor but as the economic policies move on, and people move from poverty to lower middle class, spending increases and so do the pressures. Chinese consumers are becoming more sniffy too, look at the problems that Mulberry is having after it tried to inflate the costs of its handbags out there.
Do you cash out now and sit and wait? It means careful asset picking for long term capital growth, I think that tactical accuity and dexterity and EM are (if not already) have become a thing of the past. Time possibly, to look for value stocks instead of growth which has done well.. particularly the past 2-3 years. If you want to stay exposed, then there is definitely a case for pound cost averaging over the next couple of months rather than simply leaping in (take advice you trust). My broader view on volatility is that short term there is no catalyst for immediate redress, not much hope. Not good for short term then but you should look at EM now as you may look at UK or US.
How do you gain exposure? Aberdeen, Threadneedle and Shroeders for instance, might have completely different philosophies.. which one works for you? You either adopt a macro-perspective and play to that, but if you're following particular companies, keep an eagle eye on the management, demographic and legislative changes.. are they on Third Plenum songsheet?. But make sure you keep an eye on the in vogue assets by maintaining a close eye on them too, and don't be averse to tactical stock picking. But the days of having a bit of EM for the sake of it, simply because everyone should consider at least, having some sex and violence in their portfolios, have passed.
In other words, if you would like exposure but would prefer to avoid the losers rather than trying to find the next big star, make sure that your investments and fund managers are following that mindset. I think too, that passives are good for some markets (US mid caps for instance) but not for China. Finally, be strict about governance. If you're into China, are 'your' companies (also) on a stock market that allows credibility (ie; Hong Kong)?
But if we accept that things are better for investor reform agenda (Hokou urban registration system refers), if rural land use rights strengthened, if people are spending more (check out Chinese SUV purchase data, fellow PHers), where will the new growth come from? If you look at the value of (not privately owned growth funds which have done well) state owned assets which are having ownership wrestled from them, which ARE languishing, there might be long term much better good news.
China needs to get rich quickly, to support the (for it) rapidly ageing population and the boom in the middle class. If we look at the definition of an Emerging Market which refers to a set income per capita. Huge disparity between the rich and poor but as the economic policies move on, and people move from poverty to lower middle class, spending increases and so do the pressures. Chinese consumers are becoming more sniffy too, look at the problems that Mulberry is having after it tried to inflate the costs of its handbags out there.
Do you cash out now and sit and wait? It means careful asset picking for long term capital growth, I think that tactical accuity and dexterity and EM are (if not already) have become a thing of the past. Time possibly, to look for value stocks instead of growth which has done well.. particularly the past 2-3 years. If you want to stay exposed, then there is definitely a case for pound cost averaging over the next couple of months rather than simply leaping in (take advice you trust). My broader view on volatility is that short term there is no catalyst for immediate redress, not much hope. Not good for short term then but you should look at EM now as you may look at UK or US.
How do you gain exposure? Aberdeen, Threadneedle and Shroeders for instance, might have completely different philosophies.. which one works for you? You either adopt a macro-perspective and play to that, but if you're following particular companies, keep an eagle eye on the management, demographic and legislative changes.. are they on Third Plenum songsheet?. But make sure you keep an eye on the in vogue assets by maintaining a close eye on them too, and don't be averse to tactical stock picking. But the days of having a bit of EM for the sake of it, simply because everyone should consider at least, having some sex and violence in their portfolios, have passed.
In other words, if you would like exposure but would prefer to avoid the losers rather than trying to find the next big star, make sure that your investments and fund managers are following that mindset. I think too, that passives are good for some markets (US mid caps for instance) but not for China. Finally, be strict about governance. If you're into China, are 'your' companies (also) on a stock market that allows credibility (ie; Hong Kong)?
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