Emerging Markets To See A Correction

Emerging Markets To See A Correction ?

Emerging-market stocks will drop as much as 15 percent this year as earnings miss estimates and global growth slows, said Devan Kaloo, who oversees $22 billion at Aberdeen Asset Management Plc.

Kaloo, Aberdeen’s head of global emerging markets, said he’s holding fewer Chinese stocks than are represented in the benchmark MSCI Emerging Markets Index because the government’s stimulus program may lead to a banking crisis. Kaloo said he’s “overweight” stocks in Mexico, India and Turkey, “neutral” on Brazilian equities and “underweight” Russia.

The markets will see a correction this year, Kaloo, whose Aberdeen Emerging Markets Institutional Fund has beaten 93 percent of competitors in 2010, said in an interview in New York. “People get over-optimistic and expect too much out of earnings and global growth.”


Greek Prime Minister George Papandreou said yesterday that if the turmoil in his country “metastasizes” it “could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago.” Stocks plunged worldwide after the collapse of Lehman Brothers Holdings Inc. in September 2008 froze credit markets and caused global trade to plummet.


“From a stock-picking perspective, we can find better opportunities” than China, he said. “The government pumped money into the financial system, but soon they’ll run out of money,” which will hurt the earnings of Chinese companies, he said.

If you believe that emerging markets are truly overbought and needs to go a correction, going long FXP (ProShares UltraSh FTSE/Xinhua China 25) is a good strategy. Instead of trying to figure out which shares to short, FXP provides an easy access to short one of the emerging markets (China in this case).

If you like to short stocks, FXI is the one to do that.

Source: Bloomberg