Emerging Markets used to correlate strongly with oil prices, not anymore. Which is logical given the fact that many of the largest EM such as China, India, Korea , and most of Southeast Asia are beneficiaries of lower oil prices, while the beneficiaries of higher oil prices are Russia, Nigeria, and The Persian Gulf countries which are small by market weight.
This phenomenon was recently discussed by Charlie Bilello in an article on SeekingAlpha.com, saying:
“In markets, investors prefer simple narratives, and lumping all emerging markets into one bucket with one driving factor (crude oil) makes investors feel good. For as long as they can predict which direction crude oil is going, they can predict emerging markets.
There are only two minor problems with this logic:
- Investors cannot predict the direction of crude oil any better than they can predict the direction of the dollar, interest rates, or the S&P 500.
- Crude oil is only one factor among many influencing the direction of emerging market stocks.”
Click here to read his full analysis.
Marko Dimitrijevic is one of the world’s foremost emerging markets experts, with over 35 years of professional investing experience. A pioneer in conducting on-the-ground due diligence, particularly in frontier markets, Marko has invested in over 120 emerging or frontier markets, and was one of the earliest Western investors in China, Russia, Indonesia, Bangladesh, and Saudi Arabia. Currently chairman of investment group Volta Global, from 1995 to 2015 Marko managed one of the world’s best performing emerging markets funds.