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Alternative Market Briefing

The Big Picture: The stage is set for an emerging market crisis

Tuesday, September 10, 2013

amb
Benedicte Gravrand, Opalesque Geneva:

An Opalesque column for global macro investors.

The U.S. Fed recently announced a forthcoming tapering of QE, which coincided with money leaving emerging market (EM) investments. EM currencies have been battered, bond issues have lowered, and equities have lost value.

Vijai Mohan, founder of San Francisco-based Hyphen Fund Management LLC and portfolio manager of the fund Hyphen Partners L.P., a long/short equity hedge fund, told Opalesque at the end of last year that the fund was generally positioned along two lines; long developed markets and heavily short emerging markets. He believed an EM crisis was imminent.

Investors are pulling out of EM stock and bond markets for the first time in 9 years

How much closer are we to an emerging market crisis? According to Vijai Mohan, it has already started.

The four triggers for an EM crisis are, according to Mohan:

(1) A deterioration of the terms of trade of debtor countries (Deteriorated steadily since early 2009) (2) A recession in the core countries that were the providers of capital (Started with the 2011 Eurozone crisis) (3) A rise in international borrowing costs driven by events in creditor countries, such as tighter monetary policy (2013 Fed "Tapering") ......................

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