Thursday, October 05, 2006

Why are emerging markets so interest rate sensitive & confessing and unhealthy habit

First, I must admit an unhealthy habit.
I like peeking in on the market and watching what happens daily.
I know it's a bad thing leading to market timing and active trading, but I do find it interesting. I imagine I'll eventually stop once we have the investment advisor on board.

That aside, one thing I've noticed is that my emerging market investments:

IIF - India Fund (CEF)
EEM - ETF ishares emerging markets
RNE - Russia and New Europe (CEF)

are very senstivie to interest rate swings. At least as much as the average US market - but apparently with a higher rate of change.

I had always looked at emerging market investments as an uncorrelated asset class. The propensity to swing the same way (actually a more exagerated swing) as domestic markets is disturbing.

I wonder what my new investment advisor will have to say about this.

I do predict he'll scuttle the IIF and RNE investments, as they are not indexed and actively managed. Then again - at least for Russia - I've been told their capital markets have not been sufficiently developed to create an efficient index investment product.

Have a wonderful day,

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