Globalization: Is Soros On the Verge of Dumping Emerging Markets?


Will Soros ruin my Siamese party

Soros turns “Bearish” but will he dump emerging market fund.

Many believe Soros lead an attack on the baht way back some 15 years ago that caused the collapse of the baht and sunk the Thai economy into the IMF hands. While Soros denies attacking the baht, and subsequent research found that the withdrawing of Asian funds from Thailand is the main cause of a run on the baht, Soros is back.

And yet again maybe Soros is on the attack, and this time looks like it may be emerging markets that may again be the victim.

He says the US stock market looks poised for a serious retreat in 2010, and will most likely drag global markets, that rely heavily on the US stocks for their sentiments, down with it.

The difficulty in gauging this Soros grim prediction is that Soros is seldom wrong. For Thailand, that as other stock market Guru, such as Marc Faber, now says Thailand is a great place to be, the bottom line is that Soros is a a global class hedge fund manager, who commands a great deal of respect from other short-term investors.

These short-term “mad money” many say, is driving emerging markets.

So to put it bluntly, short-term money heading to emerging stock market may evaporate, if and when the US stock market re-treats. That will mean a stock market that will have to rely on local and regional “Good Fundamental News.”

But what are good fundamentals? Soros says much of the US growth is from the stimulus that is not-sustainable-and that means bad fundamentals. In Thailand’s case, it looks very much like the US case, where fundamentals-are mostly psychological positive feelings related to the stimulus-with some real impact off-course.

In a recent interview, Soros said the US market is now very overextended and at substantial risk of another downturn. But that doesn’t mean the market will turn down immediately. Soros says the market is likely to remain buoyant throughout the remainder of 2009 and will likely face its reality of weak global growth in 2010. He says the rally has been driven by the government stimulus and little else. Soros says the recent uptick in bank earnings is essentially a fraud:

“Those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the government.”

Soros recently said the move down in the dollar was unsustainable and that its link to the Renminbi would reduce the overall decline. Despite this, Soros is betting big on all things “real”. In particular, Soros is betting big on oil related names. Soros has over 33% of his funds invested in energy related names. He recently announced large positions in Interoil (IOC) and Headwaters (HW). Soros’ largest positions remain PetroBasiliero (PBR) and Hess (HES) which both represent over 5% of his portfolio.

But then again many emerging stock market, lkie the Thai stock market is about 40% related to energy, and with Soros so heavily into energy, perhaps, emerging stocks will have a chance in 2010.

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