Speaking to InvestorDaily, Mr McClone said the high correlation between commodity prices and emerging markets since 2005/2006 has been an anomaly.
“If you go back to the 1970s, it was largely uncorrelated,” he said.
The fall in the correlation (from 0.8 to 0.2 in one year) is a return to the norm, Mr McClone explained.
Furthermore, the correlation between emerging market countries is now falling away, he added.
“The losers are Russia, Brazil, Chile, Peru, Nigeria, and the Middle East.
“Commodity-producing countries are having a tougher time because the terms of trade are going against them,” Mr McClone said.
On the ‘flipside’ are commodity-importers like India, China (to a lesser extent), the Philippines, Thailand and Indonesia, he continued.
“They are the countries going into next year that are going to continue to do well and are going to have a tailwind of a tax cuts and falling inflation,” he said.
India, in particular, will likely start cutting interest rates in the first quarter of 2015, Mr McClone said.
“You’ll see earnings going up and [price/earnings] multiples going up in a country like India,” he said.
William Blair’s Emerging Markets Leaders fund is putting its money where its mouth is with a massively overweight 20 per cent position on India.
“We’re 20 per cent in India, the benchmark’s around seven per cent. That’s a pretty substantial bet, but I have a hard time seeing [how] that’s not going to work,” Mr McClone said.
Mr McClone is confident the oil price will ‘reset’ at the US$55–$70 level, which will be good for oil-importers like India.
“It’s going to be difficult for the oil-producing countries because a lot of their budgets are set on higher oil prices,” he said.
He predicted that Venezuela would “end up defaulting [on its debt]”, noting that Nigeria has moved to devalue its currency in recent weeks – and Russia is also trouble.
“You’re starting to see the chinks in the armour for these oil-producing countries and their currencies [are] coming under a lot of pressure.
“They’re going to have to adjust to this new reality of oil being in this $55–$70 band, not $70–$100 or $80–$100, which it has been for the last couple of years,” he said.
