At the moment we are largely in cash and there's good reason for that, with these volatile and inconsistent markets.

In our modest long positions, we're overweight Russia and Central Europe with some cautious positions (and an underweight mentality) in China and the other emerging markets. The time will come when we jump in aggressively, but it's not here yet.

More on Decoupling
There has been a distinct decoupling in the markets, regardless of what you've heard. But it hasn't been strictly between the US and emerging markets. The real decoupling has been between the equity markets over much of the globe (which have been moving largely in tandem) and commodities. This in part from fund managers and investors frustrated with the equity markets looking for diversification and in part due to the physical demand for commodities. Just look at charts for corn, coffee, wheat, soybeans, oil, gold, silver or platinum to name a few.

Much of the agricultural commodity spike can be linked back to the big push for ethanol. This changes the supply/demand dynamics for corn and all the other grains (which act as replacements for feed stock and other uses when corn is scarce). Much of the metals demand can be traced to global growth.

Since a good number of emerging and other international markets have a meaningful commodities base (such as Canada with its oil sands and Australia with its metals and ores), this provides us with a fundamental factor to consider when hunting down investment opportunities.

It is important to keep in mind that the commodities boom is a somewhat lagging indicator to global GDP and infrastructure growth, especially in China, Russia and India, so blindly chasing commodities or commodity-driven markets would not be a good move without have a good reading on the continuing growth in those markets.

Since the growth in China may be moderating (we may even look to take short positions at the right time on companies tightly correlated to China's growth - but not yet), we have to pick and choose our commodity plays looking forward, not backwards as so many on Wall Street do. That's why the current focus on Russia and its geographical sphere of influence. Russia's middle class is in the early stages of a tremendous growth spurt and with the middle class will come a boom in infrastructure build-out and consumption.

I'm looking to add to our Russia and Central Europe positions small bites, on dips and remain interested in other key emerging markets such as Turkey. Currently we're only in the Central Europe and Russia ETF, symbol CEE, as discussed in the February 21 post but the other potentials we've discussed are on the table.

Frontier Markets on the Radar
I continue to consider Frontier Markets as having unique and explosive potential, but it is also a universe where we must tread carefully. The vehicles to invest in the frontier markets are few. The individual companies are illiquidity and unavailable to US investors. Plus there is an amplified political risk and economic risk in many of these countries.

However, I expect to be staging into some modest investments in this arena, and sharing the details with you, very soon...

Best wishes,
Jeff Manera

Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net