Ugly word, but the concept may have validity.
There was an article somewhere a couple of days ago talking about the "fragile five" - South Africa, Turkey, Indonesia, Brazil and India. Of these Turkey and South Africa were said to be the most fragile. I've been adding modestly to IDX and bought TTM last week.
FT, two days ago:
Reversification" sounds like an awful neologism. Maybe it is. But the concept behind the ugly term is attractive.
"Diversification" is the idea, often heralded as the key to long-term gains, of reducing risk by investing in all kinds of assets. In recent years the emphasis has been on placing cash in emerging bond markets to pick up higher yields, as bond markets in the developed world are suppressed by aggressive monetary easing as well as low growth.
Reversification - a term coined by ANZ, with few followers so far - is the opposite.
Now that US growth is picking up, Europe appears to be stabilising, and the Federal Reserve has begun winding down its bond-buying programme, ANZ argues that investors will dump EM bonds and come back into developed world equity markets.
Back in June, ANZ analysts said:
Some reversal of the previously strong diversification thematic is likely to be permanent. The world is healing.
ANZ even has a Reversification Index to track developed market equity flows against emerging market bond flows. It pretty clearly shows a change in trend in recent months (see below).
The theme is playing out within Asian markets this month. The latest EPFR data shows $3.3bn of cash has moved into Japanese equity funds in the last two weeks, while investors have withdrawn cash from emerging funds for seven straight weeks.
ANZ commented today:
We see capital flows continuing to work against Asia and other EM currencies, as funds flow back to developed markets, in line with our reversification theme.
Ugly term or not, it's worth pondering.
Comment, Emerging Markets, Fed tap
