About the same time that “junk bonds” became “high yield” and shortly after “third world” became “emerging markets,” the finance industry quietly engineered another rebranding: “leveraged buyouts” became “private equity.”
Yesterday was the EMTA annual meeting, complete with its venerable and always interesting panel of buy-siders. My favorite is always Hari Hariharan of NWI managment: when asked what his favorite trade is, he never says something simple like “long Brazil”. Instead, it’s invariably a complex relative-value trade: this year he said that “a one year forward 2s-5s steepener in Korea could be an offsetting trade to receiving front-end Mexico”. You’re welcome.
This chart (via Paul) I think is too meek: of course the current emerging-markets boom is debt-financed. And boy does it look bubblicious, what with the Bovespa having doubled in the past 12 months and rapidly approaching its all-time high. I’m a believer in the long-term future of Brazil, and even count a Brazilian ETF among my few investments. But at this point any investment in emerging markets looks very much like a speculative momentum play: don’t invest anything you can’t afford to lose.