This week saw a reversal from last Friday when we trounced the big boys.
Our Taipan Emerging Market Index dropped 14.28% today -- a case of severe inflation backlash. Rising energy and food prices sent investors fleeing for safety into other sectors. As we've maintained all along, emerging markets are not for crybabies. If you want to make dough in emerging markets you need to be in for the long haul.
Key
ALL ORDINARIES IDX (ASX: ^AORD) Australia
BSE SENSEX (Bombay: ^BSESN) India
IBOVESPA SAO PAULO (^BVSP) Brazil
EGYPT CMA GENL INDX (Cairo: ^CCSI) Egypt
HANG SENG INDEX (HKSE: ^HSI) Hong Kong
COMPOSITE INDEX (Jakarta: ^JKSE) Jakarta
COMPOSITE INDEX (Kuala Lumpur: ^KLSE) Kuala Lumpar
KOSPI Composite Index (KSE: ^KS11) South Korea
MERVAL BUENOS AIRES (Buenos Aires: ^MERV) Argentina
IPC (Mexico: ^MXX) Mexico
NZX 50 INDEX GROSS (NZSE: ^NZ50) New Zealand
IGBM (Madrid: ^SMSI) Spain
TEL-AV TASE-100 IND (^TA100) Israel
TSEC weighted index (Taiwan: ^TWII) Taiwan
SSE Composite Index (Shanghai: 000001.SS) Shanghai
iShares MSCI South Africa Index (EZA) South Africa
RTSI INDEX (RUS: RTS.RS) Russia
ISHARES MSCI THAILAN (NYSEArca: THD) Thailand
iShares MSCI Turkey Invest Mkt Index (TUR) Turkey
Just consider that last week, the Taipan Emerging Market Index saw a gain of 7.58%, leaving the S&P 500 and the Dow in the dust.
Emerging markets are volatile. In this instance, they are susceptible to inflation because they need the capital to maintain growth. Much of that money comes from commodity exports, which traditionally trade in dollars. So naturally a declining dollar can spark a sell-off.
More often than not the bullish sentiment of the commodity market can fend off the impact of a weak dollar. Other times, though, investors panic and get out of emerging markets and move to pastures that are perceived as greener (read safer).
At this point we're not too worried. The current drop in our index seems like just another cyclical trough. Let's see how investors feel after Wall Street returns from a long weekend. As of this writing, the S&P 500 is down 1.21%, with the Dow also down 1.09%.
Keep the faith.
--Irwin Greenstein
