So much to do – so little time!
Russia – the reader will be glad to know – is still here. Although Mr. Khodorkovsky appears set to remain a guest of the Russian state for as long as it takes for his defence team to understand the first rule of asymmetric warfare: one does not go head to head against a far stronger adversary, the widely predicted rain of brimstone and fire has clearly not materialised. Indeed, financial markets have taken it very much in their stride, with Russia handily outperforming her BRICs peer-group, and an encouraging increase in foreign direct investment. So much about our business is simply cyclical… and buying Russian assets during periods of extreme bearishness in the Western media has, once again, proved to be as reliable as any strategy in finance!
If only the rest of the world were as quietly predictable as Russia! The degree of complacency among investors is truly impressive, as the Middle East – a region which has long produced far more history than could be consumed locally – threatens to become suddenly interesting again. The effects of expansionary monetary policy, and commodity price inflation, can show up in the most unexpected places… Beware those emerging economies sitting on socio-political fault lines.
Meanwhile, with the US desperately trying to keep the bubble inflated, an increasing number of countries are biting the bullet and withdrawing stimulus – with China hiking for the third time in five months, some of our strategist peers are scurrying to get out of the way, reallocating from the EM to the DM just as fast as their little legs will carry them.
In our view, the term “Emerging Markets” is more an impediment than an aide to analysis. There are Ems and Ems – some are long oil, others are short. Some have fiscal surpluses, others large deficits. Is Turkey not more akin to “developed” Portugal than it is to “emerging” China? Therefore, while we would reallocate away from those countries which saw the most rapid inflows last year, we will remain exposed to those with good macroeconomic ratios, modest CA deficits (or surpluses) and, especially, the major commodity exporters – energy, metals and softs.
Finally, this month we take a shot at the consensus view that increasing populations are always and everywhere a blessing – with India surging ahead, while the likes of China and Russia condemned to decline because of their stable demographics. What madness! We suspect that some day, our successor species, be it reptilian, mammalian, or purely aquatic – shall marvel at the wilful blindness of mankind as it fatally fouled its own nest. Seven billion and counting, so if we go, it will be in good company!
Not to worry – as our Aussie friend, Paul Dean, told his children, worried by what they had heard in their green school: “Of course the world will be okay… it always recovers – just give it 150 million years or so, and everything will be fine!”
Trying hard to adjust our trading horizons!
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