Thread by @PauloMacro

Asia/EM equity/global macro 🧵

The Indian rupee explosion tonight is hands down the most important move in Asia happening and nobody seems to notice. This is an ENORMOUS development if you know how the RBI operates.
1/10

https://twitter.com/PauloMacro/status/1567559549430775809

For equity guys I will lay this out: this EM “asset class” has been getting blasted relative to DM nonstop since 2011 (when coincidentally commodities peaked out). The bleed has been relentless, and allocators have been redeeming for years.
2/

After all, what’s the point of diversification when all it does is lose you money for a decade when everything else is working?

So it’s Jan2021. China “won” Covid and you love to hug the 40% EM/Panda benchmark. Hell you’re probably overweight Ch because they just “get” tech.
3/

And then Ant gets pulled, Tencent and Baba and education and Evergrande fall down the stairs, and just like that your AUM are -20%. You see Value is making a comeback post Biden election and commodities are starting to have a pulse.
4/

Given how dysfunctional and small Latam is, you figure why not Russia - but whoa you don’t own Gazprom or kill-the-planet anti ESG… no no …you express Growth with a Value zipcode…Sberbank, Tinkoff — that’s your lane.
5/

And then despite obvious signs (oh yes - I had this), every single EM manager I have ever known (EVERY. SINGLE. ONE.) is overweight Russia when Putin goes in. You get locked into stocks that you can’t touch *forever* and basically have to take a total loss mark.

Strike 2.

6/

Now it’s seven months later. You can’t invest in China because who knows what comes next with Xi. Russia is out. Pink socialist tide is rolling in on LatAm (and how much Mexico can you really own). South Africa is a basket case. You have one option. PAGING TINA!
7/

The only deep, liquid EM to hold a ballast exposure in is…

🛎 🛎 🛎 INDIA 🛎 🛎 🛎

And best part, it’s a net importer of energy and oil is down now, so it feels safe now.

8/

Every EM manager I know… EVERY. SINGLE. ONE… is overweight India right now. Because there is nowhere else to go. There is literally nowhere else for size EM money to park.

And now the pressure builds. The redemption rounds in EM compound the issue as the USD screams...
9/

…and Strike 3 for “EM-equities-as-an-asset-class” is just around the corner. Rising energy is what breaks this.

Silver lining: this detonation is the one that you want to buy EM with both hands in, because that is the Game Over secular bottom. But just wait.

/FIN