Look carefully into the middle distance. Can we see the long-awaited bottom for emerging markets from here?
Market sentiment turned brutally and decisively against the emerging world five years ago. Since then, stock markets have steadily dropped further behind the developed world, currencies have devalued and countless indicators of economic health have grown ever more sickly.
Emerging markets have always been a story of commodities. It is the emerging world, led by China, that largely produces and consumes industrial commodities. In practice, at least when viewed through the lens of markets, emerging market stocks make up a complex with other assets tied to the health of the resources economy.
Some of those assets are now hitting the kind of lows that suggest the cycle cannot have much further to go. The price of iron ore in Qingdao, the widely accepted benchmark for Chinese metal consumption, is down 76% from its 2011 peak. The broader Bloomberg industrial metals index is also at post-crisis lows.
The Baltic Dry index, a measure of the cost of shipping commodities around the world, subsided this week to its lowest ever. It has now dropped 95.5% from its peak set in 2008, shortly before the financial crisis. Such numbers raise hopes that the cycle is ready to turn, and some analysts - notably Capital Economics of London, which has boldly suggested emerging markets are a "buy" for a few months - believe the bottom is close.
Those looking for symbolism can turn to this month's decision by Goldman Sachs to merge its Bric fund (for Brazil, Russia, India and China) into its broader emerging markets fund. The excitement generated by the "Bric" concept that Goldman coined in 2001 has waned and died. Now, there is a recognition that people want to approach emerging markets differently.
Those wanting a catalyst can point to next month's meeting of the Federal Reserve, which now seems likely to log the first rise in US interest rates in almost a decade. The mere intimation of such a move has more than once been enough to spark capital to fly out of emerging markets - during the so-called "taper tantrum" of 2013, and again this summer. This could be the moment to flush out the last money from the complex, possibly creating the kind of extreme low from which markets can subsequently start to build.
Looking at valuations, many emerging currencies have sold down savagely, while the emerging world now trades at a deep discount to the west. Valuation does not help with timing, but it certainly seems to offer support for a protracted upswing if and when sentiment finally turns.
Beyond that, countries themselves have developed. Ugly slides as foreign money exits need no longer end in crisis now they have built up foreign exchange reserves, along with legal and financial institutions.
Against this, look at the credit cycle. As JPMorgan documents, it has turned. Non-financial debt has risen 20 percentage points of gross domestic product for emerging countries outside China since 2007, and 80 percentage points within China.
The problem with emerging market debt tends to change with each generation as EM economies and financial systems steadily emerge. Rather than the risk lying in banks or sovereigns, as in previous emerging market crises, this time it is in corporate debt. Debt growth is now slowing, but tightening credit could have much further to go. That is inconsistent with a big rally from a low.
As for commodities, they tend to move in long cycles. The time when enough production has been shut down for demand to exceed supply once more could still be years away.
The arguments on valuation are also unclear. Emerging markets were far cheaper than they are now, relative to the developed world, when they started their last upward cycle in 2002. And the most appealing markets - most obviously India - are also the most expensive. State-owned enterprises, which generally make unappealing investments, look cheap; if you want to buy exciting plays on the emerging consumer, you will have to pay top dollar for them.
Moreover, emerging markets still tend to rise and fall together. Indeed, according to Ned Davis Research, correlations between markets are increasing, and approaching their highs seen just before the 2008 financial crisis - a disquieting sign.
Emerging markets outside the Bric nations have mirrored the performance of the Brics over the past few years; and emerging stock markets outside China tend to rise and fall with the ISM gauge of Chinese manufacturing.
The bottom is growing closer. A rate rise next month, assuming it at last happens, should be enough to spark a final exodus of cash from the complex. If a true devaluation and default crisis is to happen somewhere, it is hard to see how it can be deferred long after the Fed finally starts to tighten credit.
Over a long-term view of five or 10 years, valuations and the cyclical nature of investments suggest emerging markets should work out well. Hedging bets by dribbling money in now makes sense. But the chances are there is another wave of pessimism and another crisis to come before they reach the bottom.
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