{"id":46802,"date":"2014-01-27T22:34:24","date_gmt":"2014-01-28T03:34:24","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=46802"},"modified":"2014-01-27T22:34:24","modified_gmt":"2014-01-28T03:34:24","slug":"an-emerging-market-crisis","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2014\/01\/27\/an-emerging-market-crisis\/","title":{"rendered":"An Emerging Market Crisis"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a><\/p>\n

We suppose it was overdue.<\/p>\n

A crisis hasn’t gripped the market in, oh we don’t know, at least four months.<\/p>\n

So it was about time a new crisis appeared.<\/p>\n

But what would it be?<\/p>\n

You’ve had the major crises \u2014 the US, Japan and Europe. You’ve had the obscure \u2014 Cyprus and Dubai. And you’ve seen more alphabet soup bailout funds and money printing programs than you could possibly eat.<\/p>\n

The one thing you haven’t had in a while is a good old-fashioned emerging markets<\/strong> crisis. Enter Argentina…<\/p>\n

The best way to describe Argentina is that economically it’s the embarrassing relative who you know will always do something inappropriate at the next family gathering.<\/p>\n

It’s not a matter of if it will happen, it’s a matter of knowing when<\/em> it will happen. For Argentina that came last week when it devalued its currency. The Argentine peso dropped 13%.<\/p>\n

It was perfect timing. Because if that wasn’t enough to fluster the markets, news about the possible contraction of China’s manufacturing industry got the markets worried about a new emerging markets <\/a>meltdown.<\/p>\n

So, should you worry, or like every other ‘crisis’ since 2009 will this just be another chance to buy stocks<\/a> cheap as others panic and sell?<\/p>\n

Looking for Bubbles Even Where They Don’t Exist<\/h2>\n<\/p>\n

There’s no doubt it’s a tough decision for investors.<\/p>\n

If you get it wrong it can have a huge impact on the value of your investments.<\/p>\n

If you panic and sell, and it turns out that it was a storm in a teacup, then you’ve potentially missed out on quick gains as the market rebounds.<\/p>\n

But if you hold onto your stocks<\/a>, and it turns out things are worse than expected, then you could see the value of your wealth fall 5%, 10%, 20% or more in just a matter of weeks.<\/p>\n

And if it turns out to be a repeat of 2008 you could see your wealth drop by 50%.<\/p>\n

If you’re at the stage of life where that type of fall could ruin your retirement plans then you may have no choice but to bailout on the market just as a precaution.<\/p>\n

But you shouldn’t be rash about a big decision like that.<\/p>\n

We’ll go back to something we’ve said for the past five years. Too many experts are seeking glory. They’re looking for bubbles and market\u2010tops everywhere. Even in places where they don’t exist.<\/p>\n

And so when Argentina comes along and devalues its currency, the bubble watchers perk up and say, ‘We told you something bad would happen’. Even though for all the time they’ve spent looking for the next crisis, not a single one of them had Argentina at the top of their warning list.<\/p>\n

They Didn’t See This Coming<\/h2>\n<\/p>\n

That tells you one of two things, either they didn’t think Argentina was worth looking at (hence why they didn’t see it coming) or they presumed Argentina’s devaluation would be so catastrophic they couldn’t see how it could happen.<\/p>\n

Or something in between.<\/p>\n

Our bet is it’s the former. As we said at the top, Argentina has form for this sort of thing.<\/p>\n

As Andrew Wilkinson, chief market analyst at Interactive Brokers told Bloomberg News<\/em>:<\/p>\n

‘People do not expect this to last across time and I would expect volatility to subside in the weeks ahead. There’s a belief Argentina is in a basket of its own and I wonder how sustained the move down in stocks is going to be.’<\/em><\/p>\n<\/blockquote>\n

Look, we’re not saying you should take as Gospel everything said by a mainstream analyst. After all, these are the same folks who thought everything would be fine in early 2008.<\/p>\n

Based on that view it would seem rash to sell stocks due to a devaluation of the Argentine peso. But what about China, that surely has to be a big problem just waiting to happen, right?<\/p>\n

China’s Economy to Double in Nine Years<\/h2>\n<\/p>\n

China’s a different story. We’re not about to tell you that problems with China would be a storm in a teacup.<\/p>\n

If China’s economy<\/a> hits a brick will then it could be 2008, 1987 and 1929 all rolled into one. That’s not impossible. The Chinese economy has undergone huge growth over the past 20 years.<\/p>\n

And even if China stays on track to become the world’s biggest economy in the next few years that doesn’t mean it and the world’s markets won’t crash<\/a>.<\/p>\n

Think especially about 1929. The US economy<\/a> was already the world’s biggest economy at that point, and it would grow many times over during the next 80 years. But that didn’t prevent the stock market crash of 1929.<\/p>\n

The same goes for China.<\/p>\n

But, we will make one small point about the prospects of a Chinese market collapse. From 1921 until the crash in 1929, the US Dow Jones Industrial Average climbed from 70 points to 381 points.<\/p>\n

That’s a gain of 444% in eight years.<\/p>\n

By comparison, China’s CSI 300 index has fallen from a peak of 5,737 in 2007 to just 2,215 today. That’s a drop of 61.4% in less than seven years. It’s arguable to say that China has already had its ’1929 moment’. It could be that the last five years of sideways action is the equivalent of the two decades of sideways action experienced by investors from the 1930′s through to the early 1950′s…just before the huge bull market began.<\/p>\n

Remember, despite all the talk about lower output, forecasts still suggest China’s economy will double<\/u> over the next nine years.<\/p>\n

Call us na\u00efve, but if that happens, it just seems impossible to think that the Aussie economy and Aussie resource stocks in particular<\/a> won’t benefit from that growth.<\/p>\n

Cheers,
\nKris.+<\/a><\/p>\n

<\/strong><\/p>\n

From the Port Phillip Publishing Library<\/strong><\/em><\/p>\n

Special Report: 2014 Predicted<\/a><\/p>\n<\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au We suppose it was overdue. A crisis hasn’t gripped the market in, oh we don’t know, at least four months. So it was about time a new crisis appeared. But what would it be? You’ve had the major crises \u2014 the US, Japan and Europe. You’ve had the obscure \u2014 Cyprus and Dubai. … <\/p>\n

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