Round Trip For Emerging Markets

With all the sturm and drang about emerging markets these days, you would think they might be at all time lows. You would be close to being right. The largest emerging market ETF (EEM) started trading in 2003. Not coincidentally, that was the beginning of a major bull for EM. It’s all been reversed:

So we had a classic bubble. A major asset class almost tripled on a relative basis and then did a round trip.

Are we at value? It’s always hard to catch a falling knife, and my sense is there is no risk/reward in this trade. Remember, we haven’t had much in the way of actual defaults in EM yet (or in DM for that matter). So far it’s just been the slowing of growth and possible financial trouble. Wait till some of these guys actually default (I mean you Venezuela et. al.).