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ETF News, Global Macro Strategy

Global Macro: Is The Darling of EM Faltering?; How To Trade It..

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MarketsMuse ETF and Global Macro update takes a look at India for those following the two leading ETFs in the space, the $2.3 billion WisdomTree India Earnings Fund (EPI. C-73) and the $1.9 billion iShares MSCI India ETF (INDA. C-92), and introduces a global macro perspective that adds a different dimension via a brief excerpt from today’s a.m.  edition of Sight Beyond Sight and courtesy of Rareview Macro LLC a.m. notes

India: The Darling of EM Faltering

In a very rare occurrence in India, where investors are two-times overweight the equity market benchmark, 49 of the 50 names in the National Stock Exchange CNX Nifty Index (NIFTY Index -2.81%) closed negative. Not only has the ratio of India to Brazil (NIFTY/IBOV) now retraced almost 50% since its mid-2012 ascent higher, but it remains one of the best representations globally of the unwind of the commodity importer vs. exporter strategy that dominated the deflation headlines from July 2014 to February 2015.

Here is an updated version of our favorite representation. This is the Indian SENSEX versus Brazilian Bovespa overlaid with the inverse of WTI crude oil. As you can see, without Brazil even being opened today yet, the Indian leg has taken that ratio down below the 200-day moving average.

For the avoidance of doubt, which is very high in the professional community when it comes to India, after last night’s price action the equity markets are now formally in a technical correction (i.e. -10%) as the NIFTY is -11.36% off its March high. Additionally, the major benchmarks are now negative on the year in both US dollar and local currency (INR) terms. Optically, next to Turkey, India is the only other major emerging market that is negative year-to-date.

 

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors.

Global Macro Strategy

Macro View : Bears & Bulls & Sheep; The Pain Trade: Risk Reduction

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MarketsMuse Editor Note: At risk of pounding the table too frequently by pointing to global macro strategy think tank “Rareview Macro” and their high-frequency of prescient postulating…the below excerpt from this a.m.’s edition of Rareview’s Sight Beyond Sight illustrates why this analyst is become the analyst ..For those confused by our use of ‘high frequency’, please note that we’ve filed a trademark for a new label “HFP” aka high-frequency prescience; and not to be confused with HFT aka high-frequency trading!. Premium merchandise including t-shirts, ball caps, and other items will be on sale soon!

“…The “True Pain Trade” Now Underway…Only Defence is Outright Risk Reduction”

Neil Azous, Rareview Macro LLC
Neil Azous, Rareview Macro LLC

Yesterday, our main argument was that US equity investors needed to be mindful of chasing higher prices as that was a “bull trap”. We specifically said:

“The key point here is that the S&P 500 finally closed below the 200-day moving average after almost two years and the bounce off the break of that record streak can be large enough to make professionals believe that the weakness is now over.

Make no mistake that is the formula for how we get to 1800 in the S&P 500 next. You suck investors back in only for them to have to liquidate all over again. This time, however, the losses are too great and the even lower prices force them to sell the positions they held onto all the way down in the first place and were not willing to relinquish that time around.

The sentiment is no longer about whether this is a correction or not. It is now about whether it is a 10% or 15% correction.”

At some point our microphone may be louder than it is at the moment, but for now this warning was dismissed by the bulk of investors. At the time of writing the S&P futures (symbols: ESZ4) are down -1.8% from yesterday’s highs. That is the very definition of new longs being trapped at higher prices.

Before dismissing this view we would remind you that the majority of professionals in this business are sheep, and to remain part of the asset gathering business they have to always put themselves in a position to capture ~60% of any market move. And, as sheep would, that is what they tried to do yesterday.

Now most participants who use a Bloomberg terminal just walk into the office and look at the World Equity Index (WEI) screen. This is a lazy exercise as it only provides updates for the major developed markets. The point is that a smart investor should also look at the markets not included on the WEI screen (i.e. Greece) and the Emerging Market Equity Indices (EMEQ) and World Bond Markets (WB) pages.

Why? Continue reading →