Roubini: Emerging Markets Ripe; US Equities Stretched

October 07, 2014 INSIGHT

WisdomTree Bloomberg US Dollar Bullish (USDU | 67)

One of the biggest themes that Roubini identified is continued strength in the US dollar. Specifically, he notes that while many countries are entering or continuing monetary easing cycles, the Federal Reserve stands in stark contrast, as it expects its zero policy rates and withdraws quantitative stimulus. The net effect, Roubini says, is "a gradual overall appreciation of the U.S. dollar on a trade-weighted basis." One way to implement this view is with USDU, which goes long the U.S. dollar relative to a basket of global currencies on a trade- and liquidity-weighted basis. In particular, USDU is long the U.S. dollar relative to the Aussie dollar, the yen and the euro—all of which Roubini sees weakening in 2015.

iShares Core MSCI Emerging Markets ETF (IEMG | B-99)

In the equity space, Roubini sees emerging market equities taking the lead in 2015. In his view, the combination of appropriate valuations coupled with political risk being taken off the table is supportive of a broad rise in emerging market equities. To invest broadly in emerging markets, investors might consider IEMG. For 18 bps, investors get exposure to a basket of more than 1,700 securities from emerging markets around the world. The fund has more than $5 billion in AUM and trades more than $60 million most days. True to Roubini's analysis, IEMG has an aggregate P/E near 14, which is drastically lower than U.S. equities, with an aggregate P/E near 22.

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