Emerging Markets: Buy Now, Short Later
by Michael Shulman 06/04/09
Free Trading Guides
The BRIC countries (Brazil, Russia, India, China) were the hot investment play a while ago, and now they are again. Hot money needed a home and has found one in the emerging markets.
What is driving the money flow to emerging markets?
Two things:
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1. Wall Street's belief in an economic recovery.
The Street wants the market to go up, and the phrase de jour is "green shoots."
Plus, the Street is looking to a positive GDP number in Q4 -- a statistical certainty -- and the "second derivative," i.e., the rate of decline is slowing.
I don't think we're out of the woods yet. This rally is not sustainable, but the trend is very strong, so don't try to fight it.
2. Fake Chinese data.
The problem with the most influential of the BRIC countries, China, is the total fiction they make of data that enables investors to track fundamentals of the economy or individual companies.
Simply put, how do you know a Chinese government official is lying when discussing the economy? His or her lips are moving.
But there's some data they can't lie about.
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