by Marc Chandler

Take 2:  Emerging Markets

Often investors think of emerging markets as a single asset class.  That may have been the case before the crisis, but going forward there investors are likely to appreciate greater differences among emerging markets.

Asia has been home to the most attractive emerging market plays in recent months.  Partly this is a function of China’s great fiscal stimulus and the spill-over impact on the region, for which China is their top trading partners, including South Korea and Taiwan.  Asia is also tied into the U.S. technology cycle and has benefited from the relative out- performance this U.S. sector.   Bond yields tend to be low, but equity markets are robust and currencies are mostly steady to higher.

Eastern and central Europe is the least attractive of the major emerging market regions.   The region has large budget deficits, trade deficits, and weak institutions.  Many home owners in Hungary and Poland took mortgages in Swiss francs and euros and this produced a punishing currency mismatch when the global crisis became acute in the H2 08.

West European banks may not have developed a sub-prime mortgage program they way U.S. banks did.   However, many did lend to emerging markets, especially in eastern and central Europe, on terms that seem equally oblivious to the risks.   Austrian and Belgian banks have the greatest exposure, but in some ways they are protected by being members of the euro-club.  Swedish banks have the third greatest exposure and, at times, this has been a factor that has weighed on the Swedish krona.

Latin America is in the middle. This is more a function of the diversity of the region. Brazil’s commodities and high interest rates attract interest. Mexico has long been a darling, but its star has been tarnished by the drug wars and high level of violence, swine flu, economic weakness in the U.S., and confusing policies. Chile and Peru have been interesting commodity plays at times.  Most global investors avoid Argentina and Venezuela.

Take 1:  Near Term Dollar Weakness

Take 3:  BRIC or CRIB

Marc Chandler, is Chief of Currency Strategy at Brown Brothers Harriman.  He is author of Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange.   He appears frequently on television and writes for a number of publications on a regular basis.