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Shoot a bullet now
Weekly investor research
12 February 2018
Investors have consistently been able to add hundreds of basis points of alpha by actively buying into Emerging markets (EM) assets, in months when the VIX index spikes by 10 points or more. Risk aversion episodes, such as last week’s VIX spike, have therefore been excellent entry points for EM investors. Buying EM during VIX spikes means adding at a time when markets over-react to the downside, thus exploiting one of the most irrational investment practices. That is to sell everything in EM as a knee jerk reaction in response to risk-off episodes, regardless of their nature or origin. EM assets are not mispriced like developed market assets, while the technical and fundamental backdrops are strong and improving. We believe that investors should consider scaling into the market in a phased manner, starting with a first bullet right now and stand ready to fire more bullets if prices fall, say, ten percent further.