E D'S RANT September 2018
A planetar y mis-alignment Emerging markets are feeling the effects of Donald Trump’s wildly erratic behaviour, says Michael Wilson. But has the President inadvertently created a unique buying opportunity? And is it all written in the stars? Ben Graham never had many doubts about the importance of looking beyond the market’s fickle valuations. Don’t waste too much of your time examining the momentary fundamentals behind a particular investment, he said – just focus instead on Mr Market’s daily price, which might be well out of whack with the real situation for all kinds of reasons, and choose your moment to lock into a long-term investment if it looks likely to be a keeper. Looking at the overall state of emerging markets today, it’s hard not to reflect that Mr Graham had it easier than we do in this internationalised world, a world where money can be moved from one hemisphere to another at the push of a button. When we look at the soaring economies of China, India and much of the Pacific region, of course, there’s absolutely
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no question that the underlying economic oomph is there in abundance. China’s economy is set to grow by 6.6% this year; India’s by 7.3%; the Philippines by 6.4%; Malaysia by 5.6%; and Indonesia by 5.3%. At a time when none of the global majors is pulling in more than 2.5% or thereabouts, what’s not to like? One question, two answers That’s a question with two answers, unfortunately – a logical one and a market-risk one. The logical answer is a simple slam-dunk for the optimistic view that the vast population growths in South Asia and the rapid advance of urban consumer cultures in the rest of the developing world can literally guarantee a demand growth of a kind that developed nations can only dimly recall. And for the fact that low
domestic wages and sometimes currency pegs have allowed third world exporters to undercut their Western counterparts on the price front. (Hey, not even Donald Trump can be wrong about everything…) We could also point out that China, for instance, is bringing in so much foreign currency at present that it could afford to bankroll the American government’s deficits almost single-handedly – and that it would be a fool who chose to disrespect his banker. (err, wouldn’t he?) The market-risk argument, however, has been running all the other way this year. (There, I’ve said it.) The awkward fact is that the MSCI Emerging Markets index (MSCIEF) dropped into technical bear territory during mid-August, having lost 20% of its value in US dollar terms since the start of 2018.
IFAmagazine.com
