Readings: EM Bubble, Trading Edge, Chinese reserves & SWF
- Forbes: The Next Bubble?
Mutual fund firms, never ones to pass up an investing frenzy, have been diving in as well. Five years ago there was but one fund newly set up to target the sector; this year there are 16, says Morningstar. Individuals doubled their mutual fund bets in emerging markets last year to $11 billion, says AMG Data Services; as of Nov. 20 they totaled $14.2 billion for 2007.
. . . profit margins in emerging markets are twice again as high as in developed ones. The obvious risk here is that profit margins in emerging markets will decline to global average levels as new competition surfaces.
- Financial Sense: Finding Your Trading Edge
. . . behavioral traders do not ascribe entirely to the Efficient Market Hypothesis or the Random Walk Theory. We look at something more akin to the Complex Adaptive Market Hypothesis put forth by Andrew Lo and colleagues.
. . . behavioral traders must search for and find what Michael Mauboussin has called “diversity breakdowns.” These are points of instability in price where there are likely to be collective overreactions or under-reactions caused by irrational traders and investors. The key to trading and investing successfully is to look for the points of greatest instability. In other words, in order to profit maximally, it is necessary to understand both your own psychology and the collective psychology of other market players.
. . . areas of support and resistance are points of volatility and instability. They can be great edges or they can throw you right off the edge and into the abyss.
Wise words!
- BeEarly: China’s Big Outward Leap
Beijing created China Investment to make better use of its foreign exchange reserves, which have more than doubled over the past 2½ years as Chinese exports to the world have surged. Most of that money - up to 75% by some estimates - is parked in U.S. government bonds and other securities.
Since the Blackstone deal, China Investment has been painfully conservative. Over the past few weeks, its executives have made it clear they will spend most of their $200-billion not on foreign acquisitions but on helping Chinese banks.
. . . the $2-trillion to $3-trillion that sovereign wealth funds can marshal pales beside the roughly $53-trillion controlled by private institutional investors.
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