JoeCole's Blog : Emerging Markets

On Sunday, Financial Times ran the story: "Currency war deemed over."

I assess that given the pullback this year in emerging markets, now is a pretty good time to buy emerging market stocks such as BRIC. This is barring any further spread of revolt in the Middle East, something I think is unlikely in countries like Kuwait, Saudi Arabia,or even Iraq. If one of these countries or Iran broke into some sort of civil war, we could expect the stock market to fall precipitously overnight, however unlikely.

This being the case, one can buy emerging market stocks and insure against a 20% drop in market prices by buying out of the money VIX calls or EEM puts. I recommend the June options because it seems that ambient temperatures above 110 degree F would not be very conducive to revolution (ie in July-August).

I recommend BBD based on the long-term reverse head and shoulders break to the upside and bullishness overall on Brazil (of course barring any currency crisis or Mid-East crisis). That being said, Brazil as an exporter of fuel and commodities should stand relatively well in either situation.