Why 2014 May Be the Year of the BRICs

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Dec. 23 (Bloomberg) –- On today’s “Chart Attack,” Pension Partners Chief Investment Strategist Michael Gayed and Bloomberg’s Adam Johnson look at emerging markets in 2014 on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

We have a couple of charts that will make you smarter.

We focus on emerging markets.

They have been lagging for three years.

That could change in 2014 according to our closer.

Why are emerging markets going to rebound?

Some say three years is the magic time in which laggards turn to leaders.

Leadership tends to return.

You have had this disconnect between developed equities and emerging markets and s&p and emerging markets.

You can see that given the huge spread between the index and s&p 500 the last three years.

Is that an opportunity rather than a crisis?

Every iteration of qe has made the u.s. outperform emerging markets.

Now we have the taper.

Maybe tapering will be good for emerging markets.

You look at the emerging-market sovereign debt etf divided by the treasury etf.

When the taper talk began in may, you saw collapse of emerging-market debt.

Now you have the taper on the far right of the chart.

Emb is outperforming, leaving.

This is the face of the taper.

This is very important.

This ratio is emerging bonds versus u.s. treasuries.

When the ratio turns up, that means emerging bonds are outperforming treasuries.

That is in the face of the taper.

That is a massive change in tone happening now.

As much as we're told taping is bad for emerging markets, emerging market debt seems quite the opposite.

Is this a function of the fact we are tapering so there will be less of a bid for longer dated paper here?

Or is it because there is a rebound happening in emerging markets?

I think there is an element of confidence building.

We have seen action taken in india.

We have seen brazil raise rates.

Emerging market paper seems more stable than it did in may.

In many ways, it is the ultimate contrarian trade.

Nobody thinks emerging markets will do well.

A recent goldman report said they will continue to be volatile the next couple of years.

To me, that is three years too late.

Now might be the time to bet on it for next year.

Play stocks or bonds?

Credit tends to lead equities.

Maybe it is time to play the lag

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


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