The economy is set to slow down on the consumption side. Clearly, the financial results for the third quarter will be nothing to write home about. It is clear that the news flows will be bad in the coming weeks. The markets seem to be taking a stoic view of this unexpected turn. Domestic investors haven’t really reacted to the sudden shift in sentiment. FII’s have also reacted with limited selling. The markets are still waiting anxiously to see how FII behavior will impact global emerging markets. This isn’t clear yet. The coming weeks will see the markets play this guessing game. A few players will move with greater conviction and take a stance on market direction. The majority among market players are not expected to do much. With market direction not clear, investor anxiety is centered around the currency. The dollar is hardening again. The imminent interest rate hike is creating a trend of flows away from global emerging markets back to the US markets. The lack of clarity on how a Trump regime will help the US economic performance improve is not helping matters. How rates, flows and growth play out in the US markets will determine global fund flows in 2017. For now, everybody is only clear on the rates. The exchange rate and policy direction of a Trump regime are still subject of intense guessing. What we are seeing now is the habitual year end away trade from emerging markets. We will only know in January if this trend will reverse and the intensity of the trend reversal is still a matter of speculation. This leaves the field open for a few high conviction players who will take an early start and prepare their action list for 2017. The battle will clearly belong to those who build conviction correctly and action on their conviction in a realistic manner. Keeping quiet and waiting is clearly not going to help much.
“An investor should always realize that some mistakes are going to be made.” – Philip Fisher
