China is the key growth engine of the four, through its investment and spending in its infrastructure and its entry into WTO.
With China's economy powering up, India also started up its own growth engine and positioned itself as the 2nd engine.
Brazil and Russia looks more like a commodity trade, benefiting from the growth of China and India.
Thus, the risk of this emerging market play is the collapse of China, and to a smaller extend, the collapse of India
Alpha vs Beta Trade
During the recovery movement from Mar 2009 till Apr 2010, it is more of a "beta trade", as most stocks rise due to the rebound from the collapse of the world markets. Almost any stock will make money and stock selection is not really important.
However, from May 2010 onwards, it has become more of an "alpha trade" as markets move sideways. Stock selection becomes more important. "Alpha trade" entails active portfolio management, much like hedge funds.
Emerging market plays typically also require "alpha trading" to get higher returns.
Volatitility
Bonds - 4 to 10%
FX - 10-14%
Equity - 20-80%
As such bond plays are susceptible to foreign exchange risks while equity players typically do not concern themselves with foreign exchange rates.
Business Cycle
Possible mappings:
Yield Curve
- Growth periods last longer than recessionary periods (japan exception)
- Yield curve becomes steeper upon start of recession. Market priced for recovery already.
- Retail investors should behave more like institutions
- Go for the long haul -> less trades, stablise the portfolio
- Have a strategy and stick to it
- Get rid of the emotions
- Public views = Winning views!
- It is the price that public perceive that matters, not what the experts calculated
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