I’ve mentioned my concerns about Emerging Market Equities over and over on this site for the past year and a half. (Please read them here). These stocks have been largely on a one-way ride since many of them came into existence compliments of performance chasing investors, ETF convenience and financial advisors who have overemphasized the fallacy of international portfolio diversification. Meanwhile, extremely successful international investors like Jim Rogers and Marc Faber have been sounding the warning bells for months and the bulls kept saying how wrong they were.

Now they are facing a new threat which has to do with investors needing the liquidity back - the same liquidity that has pumped up these emerging market equities. They are being sold because that’s where the profits are still available to be harvested. To the extent that hedge funds and sophisticated investors have benefited from high exposure to international markets, these stocks are at their mercy.

I have no evidence that emerging market equities will be hammered but they are in double jeopardy as I see it. First from the profit taking to resolve some global credit crunch issues then from the risk that the US will eventually head into a recession and cool its demand for emerging market products. Many of these markets have not faced a bear and I hope that none of my fears come true. Until I see stable trading in emerging market equities, I will hesitate to believe that the US markets are ready to find a bottom.