Hedge fund that called EM selloff sees turnaround

THE hedge fund veteran who predicted the peak of the emerging-market rally says a seven-month rout is almost over.

Jordi Visser, chief investment officer at the US$1.7 billion hedge fund Weiss Multi-Strategy Advisers in New York, said a turnaround may be near.

Since he called a "significant correction" in late January, MSCI's gauge of developing-nation shares has plummeted 19.9 per cent and currencies from Argentina to Turkey have hit record lows, leading to fear of contagion across emerging markets.

"I think we are through most of the damage in terms of time, but I'm not sure yet on the price impact," said Mr Visser, 51, citing value in the Brazilian real, Mexican peso and Chinese Internet stocks. "In terms of time-to-price relationship, I think that depends on the Fed and global coordination."

The hedge fund manager's optimism comes as a growing cadre of investors run for the exits, citing among other reasons, the US Federal Reserve's steady pace of interest-rate hikes. Portfolio flows into emerging markets slowed to US$2.2 billion last month from US$13.7 billion in July, according to the Institute of International Finance in Washington.

In January, just before the selloff, Mr Visser warned that "people don't seem worried about anything". The challenge to conventional thinking paid off: The fund is up 6 per cent this year, according to Rachael Collins, a spokeswoman for the firm.

In the ensuing months, emerging markets got hit by a flurry of setbacks. The Trump administration ratcheted up its tit-for-tat tariff battle with Beijing and slapped sanctions on countries from Venezuela to Turkey and Russia, all while the dollar climbed to its strongest in more than a year.

Rising US rates, meantime, exposed some of the most vulnerable developing economies.

Mr Visser said easing or accommodative policies by the Fed and increasing global coordination would typically signal the end to a selloff in emerging markets.

The backdrop today is far messier with sanctions, tariffs and more Fed tightening. As a result, investors should be more patient diving back into Turkey, Argentina, South Africa and Russia, he said.

"If they (the Fed) did pause for any reason, it would be a very good starting point to look at EM opportunities," he said. BLOOMBERG