My costly lesson in chasing EM rallies

Looking back at early 2021, when the EM complex was really heating up, I made a classic mistake: FOMO-driven position sizing. I had some solid core positions in various EM equities and currencies, like $BRL and $INR, which were performing well. Instead of sticking to my playbook of adding on pullbacks or staying disciplined with my existing allocations, I started to chase the parabolic moves in certain smaller EM names, convinced I was missing out on outsized gains.

The issue wasn't the thesis for EM; it was my execution. I started allocating far too much capital to these high-momentum, lower-liquidity names, often buying into extended runs without proper risk assessment. When the inevitable correction came – and it always does – the drawdown in those oversized positions was disproportionately large, erasing a significant chunk of the gains from my more prudently sized core holdings. It was a harsh reminder that even in a strong macro environment, position sizing based on emotion rather than conviction and risk capacity is a surefire way to give back profits.