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Is It Time to Dump Emerging Markets?

A tough week comes to a close in Asia’s emerging markets. Investors were hit on two fronts – first, by the Fed, which signaled it would scale back stimulus spending, and second by China’s central bank, which put a squeeze on lending.

Reuters reporter Tara Joseph said, “Welcome to the new universe of emerging market investment. And after years of cheap borrowing – it’s a brutal adjustment.”

The MSCI Asia index fell 8 percent in the past month, enough to wipe out a year’s worth of gains.

Additionally, India’s Rupee dropped almost 8% before the Indian central bank stepped in to stop the slide into record-low territory.

Jim Walker, the Managing Director and Founder of Asianomics, said, “It’s just the markets are adjusting in terms of their expectations for money flows – it’s not that the money flows have all of a sudden changed direction. Bear in mind everything’s falling, its not just emerging markets it’s not just Asia. Everything’s falling from commodity prices to bond prices to developed country equities to emerging market equities. It’s that realization that the money flows to a certain extent are now becoming limited and perhaps even central bankers are beginning to think maybe this wasn’t such a great policy after all.”

It may be time for a renewed focus on economic fundamentals and corporate results.

Walker says, “It’s unfortunately the case though when equity markets get spooked, they just get spooked all over the place. Nobody differentiates between the Philippines and China or Mexico or Poland. They’re all the same asset class and they’re all the same country in the eyes of investors when the panic sets in. Once the initial panic phase disappears then the cream tends to rise to the top and I suspect what we’re going to see is more of the same that we’ve seen over the last 5 years, and that’s that Southeast Asia will do really well and outperform the rest of the emerging market universe.”