Revisiting EM Exposure – Sizing Down Too Early
Been thinking a lot lately about an opportunity missed, or rather, a decision to scale back too soon in some of my EM positions earlier this year. Specifically, I was holding a decent chunk in an $EMQQ ETF and some direct exposure to a few South Asian tech plays that were really showing strong momentum into Q1. My initial thesis was solid – strong demographic tailwinds, increasing digital penetration, and a generally more stable geopolitical outlook than some of the LatAm plays I'd looked at. However, around March, with a bit of broader market jitters and some FUD around potential US rate hikes impacting capital flows into EMs, I started trimming. The fear was a repeat of 2018/2019 where the 'hot money' dried up. Ended up taking about 30% off the table, thinking I was being prudent and protecting capital. What actually happened was the very next quarter saw continued strong performance, and by the time I was ready to re-enter, the entry points were significantly higher. It wasn't exactly 'FOMO' that stopped me from jumping back in, but more a stubbornness about not wanting to buy back at a higher price after selling lower. Lesson learned: trust the initial longer-term thesis more, especially when the underlying fundamentals haven't genuinely deteriorated, and be very careful about letting short-term noise or historical 'what ifs' dictate sizing adjustments when the conviction is still there. My 'risk management' ended up costing me upside.
I can definitely relate to that feeling of second-guessing scaling back. It's a tough call to make when things are looking good, but also to balance that with risk management. Did you have specific profit targets or a rebalancing strategy that prompted the early exit, or was it more of a general market sentiment reaction?