Highlights:

Most investors treat EM as a bundle trade on USD strength and liquidity, not appreciating the diversity in EM’s thus taken-in exposure unreflective of their thesis or limiting themselves to unnecessary diversifying.

China and the US are the two giants who move markets with USD and trade respectively – both of which reflect the global cycle

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I have little time for EM analysts who do little else but focus on the state of the USD and the global macrocycle. Merely comprehending these drivers is unlikely to offer a significant advantage and if you are placing a bet on USD expressing that conviction through broad EM exposure may not be the most prudent approach.

Making money being active in EM is by and large down to understanding domestic dynamics and sectors whilst synthesizing them with the global cycle- most Western investors tend to merely buy the bucket whenever USD weakness is expected, and EM analysts with little skill or domestic know-how tend to get-away with half baked analysis from afar- frustrating for those who actually have their hands dirty from understanding the area they’re passionate about and assigned to cover.

EM is not a beginner’s area and certainly not easy money- the sheer diversity within the EM space should tell you that much:

Chart 1: Emerging Markets Tracker
(Note in the above chart that the “Real GDP growth (y/y, %)” reflects the variance with last year’s percentage print as a base and that we shouldn’t and that Russian data here should be taken with a grain of salt)