On Tuesday, we went into a good bit of detail with regard to the fact that the following set of circumstances are probably a recipe for disaster:
- tightening in China
- Chinese econ rolling over
- plunging commodities
- EM priced to perfection
That fourth point is critical.
EM has already shaken off the beginning of what’s supposed to be a Fed tightening cycle and EM equities have recently decoupled from commodities.
So the obvious question is how many more bullets can a priced-to-perfection EM complex deflect? There’s certainly an argument to be made that the only thing keeping this thing from going off the rails is a stable yuan:
But stepping back from the recent commodities carnage, metals mayhem, and Chinese econ data, there’s a kind of 30,000 foot (to use a worn out cliche) argument for why EM could soon stumble upon its day of reckoning. Have a look at this:
Simply put, if that is indeed the “leading indicator” it’s billed to be, then history says EM is fucked.Subscribe to NFTRH Premium for your 50-70 page weekly report (don't worry, lots of graphical content!), interim updates and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com. Also, you can follow via Twitter @BiiwiiNFTRH, StockTwits, RSS or sign up to receive posts directly by email (right sidebar).