Thursday, June 20, 2013

Like it or not, you too have exposure to emerging markets

We've received an e-mail recently with the following question (paraphrased):
"I am a US-based retail investor. I have no positions in emerging markets - why should I care about places like Brazil [discussed here] or China [discussed here]?"
Here are two reasons (among others) that should get you interested in the events taking place in emerging markets - particularly the BRIC nations:

1. BRIC nations have been buyers of massive amounts of US treasuries. As their growth slows down and current account surplus declines, so will their purchases of US treasuries. The other large buyer of US treasuries just announced yesterday that their buying days may be over some time next year. What do you think happens to US interest rates? Mortgage rates? Dividend stock valuations?

Source: Sandler O'Neill

2. Take a look at the US exports to BRIC nations over time as percentage to total exports. These nations' economic growth will have a direct and very real effect on US corporations (enjoy your CAT or BA shares while you can), jobs in the US, and the US economy as a whole.

Source: Bloomberg

So as an American investor, when you see the Indian rupee sell-off to record lows as panicked investors  move dollars out of the country (chart below), you should be concerned. Whether you like it or not, you have exposure to emerging markets.

USD/INR (Indian rupees per one dollar)


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