Emerging Markets on the Precipice

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August 21 (Bloomberg) -- Kathryn Rooney Vera, emerging market research analyst at Bulltick Capital discusses emerging markets with Bloomberg Television’s Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)

Let's go behind his numbers with catherine rooney meara.

This has been a rough ride for emerging-market sprit i feel i wake up and they are getting slammed harder.

What is the strategy?

You are right, it is all about the fed and tapering.

What we have seen so far because the on that.

Emerging markets are pricing in a crisis event as we saw in the 1990s. we are talking more than just the tapering concept.

Funds will flow out of emerging markets into developed markets because there is less liquidity on a global scale.

I think this is more of out a sudden stop.

It is a complete stop of capital inflows into emerging markets such that we saw back in the 1990s. i think the markets are really pricing in a crisis that has not happened.

I would argue that we are not on the precipice of that actually happening.

Do you see this withdrawal of money from emerging markets continuing?

Certainly, i think we will see economic activity slow in emerging markets.

I think once we get past the tapering announcement and the end of quantitative easing withdrawal, we will see a return to fundamentals with some market for educating.

That would be months away.

Certainly, emerging markets have a tough ride now through year end.

My view is in the longer-term.

I think think there are some long-term drivers like china rebalancing and continued chinese growth and domestic demand component and the expanding middle class -- those drivers are not going away.

I believe the emerging markets will continue to bleed.

Brazil, growth of two percent , current account deficit of four percent, india and indonesia.

The market is saying that if there is a sudden stop, there is not financing for these countries with big financing needs.

We could have a problem on their hands.

I am saying it is not the same as back in 1994. we have emerging markets now that have slowed exchange rates and have lower debt levels, a lot of their debt is in domestic currency, not in u.s. tolerance.

You have massive cushions which are international reserves.

We have a different world.

I think rizzo will continue to believe that this is a country that has been smacked inordinately.

-- i think brazil will continue to believe that this is a country that has been smacked inordinately.

Status regime, government intervention, a very anti- market, anti-private investment scenario.

I think the market will reward those countries like mexico that are pursuing more market friendly policies.

Even if the emerging markets are having a rough ride, it does not mean investors cannot make money there.

Emerging market managers are facing redemption every single month.

What do i do to keep my money?

We have seen massive outflows, 8.4 eluent dollars have gone out of emerging markets.

How will you get it back?

You get it back by the differentiation.

We had to get past the fear to emerging markets are inordinately hit with by this fear of tapering.

Once we get past qe which will end by 2014, i think you will see a differentiation and return of funds into emerging markets which are growing at stronger rates than developed markets.

In many cases, far stronger and have more solid fundamentals.

I think you need to pick and the market will reward some of those stronger names.

Can you tell how much of the withdrawal from emerging markets is redemptions from captive funds, emerging-market funds that are dedicated as a whole or certain regions like southeast asia or latin america and the money that is shifting out of emerging markets because the managers have some flexibility when it comes to geographic allocations?

We are seeing a multiyear low, a decade-long low in terms of allocations into the emerging market as an asset class.

There has been an outflow there in.

I think it is across the board and you can see this across the board.

Real money funds allocate based on risk.

If you see that risk is increasing in a risk asset which inherently emerging markets are, then you see a lower allocation.

I think that is was is going on plus you are seeing outflows great retail investors like emerging markets.

Brazil was the darling a few years ago.

When you have this year of easy money which ben bernanke gave us and the point of quantitative easing was to give spark to risk assets coming emerging markets benefited from that.

What we are seeing now is a reversal of that but i think it is beyond that.

It is a pricing in of a crisis mode which has not yet happened.

It probably won't. thank you for sharing your thoughts on emerging markets,

This text has been automatically generated. It may not be 100% accurate.


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