Offshore Capitalist

Reasons to sell out of emerging markets?

Look east for growth has been the mantra for many investors in recent months but there are mounting concerns that emerging markets face significant short-term headwinds.

CrossBorder Capital chief executive Michael Howell warns that a correction is ‘likely’ as volatility creeps up in the second half of the year and investors should instead be moving into late-cycle areas and even raising their cash levels.‘Near-term we do not favour emerging markets,’ he says.

‘First, the stronger US dollar is traditionally a major negative force.

Second, China is plainly trying to tighten.

Third, investors still appear euphoric about the sector.’

The group expects currency volatility to remain a big feature of the year but believes that the dollar looks well supported by prospective Fed tightening and low investor exposure.China’s tightening has been well-documented, sending jitters throughout global markets, let alone the emerging world, every step of the way.

Meanwhile, the concern about over-exuberance is backed up by the staggering surge in inflows into emerging markets, which are currently more than 15% above the six month moving average and at higher levels than 2007.

via Investment Line: five reasons to sell out of emerging markets | Professional Investor | Citywire.

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