The Real Deal on Wall Street: Feel Ya Jim Rogers

“There is no question that China will continue to loosen monetary policy.” -Famed investor Mark Mobius in a phone interview…from Bangkok.

“I am not buying China stocks.” -Famed investor Jim Rogers in a satellite interview from somewhere not in the U.S.

Well-defined opposing views on a single country, hmm. Naturally that gets these wheels turning. Whenever I read quotes that there is “no question” about an economic outcome, I question the merits underlying that call.

I immediately wonder if that supposedly smartest guy in the room full of dumb elephants is using the soapbox to hype up their own book (sound cool: talking their book).

Truth is, we rarely ever know what the financial sector all-stars have as real reasons for comments that get streamed on the newswires; it just sounds as if they have to be correct in their assessments.

So back to their being “no question” on China loosening monetary policy through reserve requirement adjustments that it began once again in December. I am concerned on the near-term direction of emerging market equities as there is question on that assumption Mr. Mobius bold stated, a question that seems to have arisen following comments by Premier Wen Jiabao.

Emerging market stocks, as measured by the MSCI Emerging Markets Index, have enjoyed their best four-week stretch since October 10, but that upward trajectory was stifled to start the week, hence me bringing this topic to your attention. Clearly, the MSCI's advance is the market reaching for attractive valuations in the context of quicker relative GDP growth stories and less perceived downside risk to growth from a China debt blowup - as well as so-so Indian consumption and investment, among other factors of course.

The thing is that the recent news flow suggests the month-long bull run in EM stocks could stall, and that perhaps Jim Rogers’ caution is a red flag worth paying attention to (the guy has historically loved all things China, so to hear counter views from him is interesting). But, in the chance you think I am losing my mind, here are a couple tidbits to chew on:

• China GDP above consensus, per the recent print, limits the need of the PBOC to significantly reopen the credit spigot (not a fan of that saying, but bear with me).
• Premier Wen thinks $1.7 trillion in local debt is “controllable”, meaning he may not be so inclined to be extra accommodative in terms of policy (doesn’t see a debt bubble sparking an asset price crash).

I will concede the point to EM stock bulls that very low rates in the U.S. may lead to a capital flight in search of higher returns elsewhere. However, in the near-term, the overly positive bias that has underpinned EM equities is coming a tad undone at the seams; why not at least consider shorting the MSCI Emerging Market Index ETF EEM.