As indicated by Stefan Wagstyl in the Financial Times, on the 20th of March 2013 - Emerging Markets lag behind:
The central bank has swung between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by preventing excessive gains. The real closed at a 10-month high of 1.9442 per dollar on March 8 before the central bank intervened on March 11 to weaken it." - source Bloomberg.
Japan's performance easily comes on top of Emerging Markets with a 20% gain while the US stock market is up 9% so far.
It appears to us that the "rise of the Kagemusha" we mused about couple of days ago, could indeed be the culprit for Emerging Market equities woes - reverse Itraxx Japan (credit risk perception has been receding), USD/JPY and Nikkei index, bottom graph Nikkei volatility - source Bloomberg:
Is valuation a concern for Emerging Markets equities?
As indicated by BNP Paribas 2013 Global Equity and Derivative Strategy outlook published on the 21st of March not really:
Emerging Equities have indeed been the victims of currency wars and "Abenomics:
"For some countries, the major equity indices can be much more heavily affected by foreign earnings than by domestic earnings." - source BNP Paribas
One thing for sure, Mario Draghi, our "Generous Gambler" and his "whatever it takes". is not alone anymore Kuroda, who officially started yesterday at the Bank of Japan, has pledged as well to do "whatever it takes" to end deflation.
On a final note, looking at the recent appetite in the UK for the construction sector (with the latest guarantee for mortgage borrowers), France (latest construction plans) and Japan's numerous public spending plans over the years, we thought this chart from BNP Paribas from their Back To the Future note on Japan from the 18th of February would entertain you, as it displays the contribution of public spending to nominal growth in Japan over the years from 1981 onwards:
If Mr Kuroda is indeed serious about "reflating" in this on-going currency wars, the "rise of the Kagemusha", no doubt, represents a serious headwind for some Emerging Markets in general and their equities in particular.
"At times it is folly to hasten at other times, to delay. The wise do everything in its proper time."