Emerging Markets 01 (May 08 - Dec 11)

[winston]

Emerging Markets Won't Re-Emerge for a While By MICHAEL KAHN

LAST MONTH, I WROTE HERE THAT weakness in the BRIC markets -- Brazil, Russia, India and China -- was a harbinger of bad things to come elsewhere. (See Getting Technical, "Falling BRICs Can Shake Other Emerging Markets," Jan. 27. 2010.)

Indeed, after the column ran, the iShares MSCI Emerging Markets Index Fund (EEM) fell by as much as 7% to its Feb. 5 intraday low before rebounding. Compare that to the Standard & Poor's 500 and its 4.5% loss over the same period of time.

While I do believe that over the long term, emerging markets should have a comfortable home in any investor's portfolio, for the near term these markets are in the hot seat.

http://online.barrons.com/article/SB126 ... =djembdr_h

[winston]

A lot of "experts" have also been calling for Emerging markets to drop for a year ...


Emerging-Market Stocks May Retreat 15%, Aberdeen’s Kaloo Says By Tal Barak Harif

March 10 (Bloomberg) -- Emerging-market stocks will drop as much as 15 percent this year as earnings miss estimates and global growth slows, said Devan Kaloo, who oversees $22 billion at Aberdeen Asset Management Plc.

Kaloo, Aberdeen’s head of global emerging markets, said he’s holding fewer Chinese stocks than are represented in the benchmark MSCI Emerging Markets Index because the government’s stimulus program may lead to a banking crisis. Kaloo said he’s “overweight” stocks in Mexico, India and Turkey, “neutral” on Brazilian equities and “underweight” Russia.

“The markets will see a correction this year,” Kaloo, whose Aberdeen Emerging Markets Institutional Fund has beaten 93 percent of competitors in 2010, said in an interview in New York. “People get overoptimistic and expect too much out of earnings and global growth.”

( He's assuming that stock prices are dependent on earnings and growth and not liquidity )

The MSCI measure of 22 developing nations’ stocks surged 75 percent last year, its best performance since its inception in 1987, as nations recovered from the first global recession since World War II. Kaloo’s $1.2 billion fund climbed 77 percent in 2009 and has returned 2.3 percent this year.

“The credit crisis of 2008 hasn’t been resolved yet,” said Kaloo, who is based in London. “There are still major debts that need to be paid down and major imbalances in the global economies that need to be corrected.”

“From a stock-picking perspective, we can find better opportunities” than China, he said. “The government pumped money into the financial system, but soon they’ll run out of money,” which will hurt the earnings of Chinese companies, he said.

http://www.bloomberg.com/apps/news?pid= ... MvgOKxsm0c

[winston]

Emerging Stocks Climb; Post Longest Winning Streak Since May
By Michael Patterson and Chan Tien Hin

March 12 (Bloomberg) -- Developing-nation stocks climbed, sending the MSCI Emerging Markets Index to its fifth weekly gain, on rising commodities and increased speculation that Greece will get bailed out by the European Union. Stocks in China and Brazil fell on concern their governments will raise interest rates, slowing the global recovery.

The MSCI gauge added 0.3 percent to 992.68 by 5 p.m. in New York, bringing its advance this week to 1.8 percent. The 22- country index’s five-week rally is the longest since May.

“It’s a global story with the improvement in European sovereigns translating into stronger demand for emerging-market assets,” said Sebastien Barbe, head of emerging-markets research at Credit Agricole CIB in Hong Kong.

Emerging-market and high-yield bond funds each took in more than $1 billion in the week ended March 10, EPFR Global said, the most since the research firm began publishing weekly data on the sectors a decade ago.

Stock Rise

Asia ex-Japan equity funds had their best week since November and those focused on Europe, the Middle East and Africa posted inflows for a 27th consecutive week, EPFR Global said in a report.

Russia’s Micex Index rose 1.4 percent. The amount of money flowing into exchange-traded funds tracking Russian indexes reached a record $191 million, UniCredit SpA said in a report today, citing EPFR data.

http://www.bloomberg.com/apps/news?pid= ... 8QlyZwRjaM

[winston]

Van Agtmael Says Emerging Markets Need ‘Breather’ (Update2) By Shiyin Chen and Haslinda Amin

March 16 (Bloomberg) -- Antoine van Agtmael, who coined the term “emerging markets,” said equities in developing nations are fairly valued and need a “breather” after last year’s record rally.

Shares in emerging markets could decline or increase as much as 20 percent this year, van Agtmael, who helps manage $13 billion as chairman and chief investment officer of Emerging Markets Management LLC, said in an interview with Bloomberg Television. Stocks aren’t cheap at levels comparable to developed markets, he also said.

“We have just had the best gains in the history of emerging markets, we need a bit of a breather,” van Agtmael said. “It’s not going to be the panic of 2008 and it’s not going to be the fabulous year we had last year.”

Van Agtmael said smaller companies within developing nations may be among the best investments after the MSCI Emerging Markets Index retreated 0.6 percent this year, following a record 75 percent gain in 2009.

The MSCI index of 22 developing nations is in the “fair value range,” trading at 12.8 times estimated earnings for 2010, compared with its four-year average of 12.1 times and a multiple of 14.9 times for the MSCI World Index, tracking developed nations. A gauge of smaller companies within emerging markets trade at a multiple of 6.2 times even after more than doubling in 2009.

“Small stocks in big countries showed last year that they were very attractive,” he said. “These are new areas that people are going to pay attention to in the future.”

BRICs Performance

Brazil, India and China, whose stock markets rallied at least 80 percent last year, are not going to be among the best performers this year, van Agtmael said. Russia may be the only BRIC nation, as the four large developing nations are commonly known, that may outperform this year, he also said.

The investor said in December he’s “overweight” on the nation. The Micex index has climbed 2.2 percent this year after it more than doubled in 2009.

China is the worst performer this year among the BRICs, with the Shanghai Composite Index tumbling 9.2 percent after government officials asked banks to set aside more deposits as reserves and introduced curbs on property.

While there are signs that the nation’s real estate prices may be excessive, the stock market isn’t in a bubble and China is unlikely to face “chaos” or experience a so-called hard landing, van Agtmael said today.

Third World

Gabriel Wallach, who helps oversee $2.5 billion as head of global emerging market equities at Fortis Investments, is more optimistic, reiterating today a January prediction that developing-nation shares can return about 40 percent this year amid a similar increase in earnings.

Van Agtmael, a former World Bank official and author of “The Emerging Markets Century,” coined the phrase “emerging markets” in 1981. Before then, such economies were widely known as “Third World.”

The MSCI Emerging Markets Index has risen 1.8 percent since van Agtmael told Bloomberg Television on Oct. 16 that the best gains in developing nations may be over as valuations have become less attractive. The MSCI World Index gained 2.3 percent.

Qatar may be one of the most attractive among the smallest developing nations known as frontier markets, van Agtmael said, citing the pace of economic growth, the development of the Middle Eastern country’s real estate market and its gas reserves. The investor also favors Saudi Arabia, saying the nation is a “huge economy with huge oil reserves.”

http://www.bloomberg.com/apps/news?pid= ... wX30v2WIAY

[winston]

Emerging markets go dark

Except for a couple of special cases like Indonesia (IDX), stocks in emerging markets are on the skids. This is a rather unusual development, and demands some of our attention.

While the long-term investment case for the emerging markets remains solid, this year most of them can't seem to get out their own way. iShares Emerging Markets (EEM) remains well below its January high and is carrying a year-to-date loss of 0.4% compared to the 9.2% gain in the S&P Midcap 400 and the 16% gain of one of the red-hot U.S. retail sector.

What gives?

After spending all of January and February on the road meeting with institutional investors, Credit Suisse analyst Alexander Redman might have a clue. In a note to clients, he said he found a "distinct mood of despondency from clients surrounding the emerging markets investment case for this year."

While he found a "great deal of evidence to structurally support the asset class longer-term, he said he also found "significant shorter term constraints.''

He then listed the following constraints that will likely weigh on emerging market stocks this year:

The strong momentum in leading global economic indicators has stalled.

* The performance of cyclical sectors vs. defensives will be vulnerable to rising short-term interest rates as central bankers around the world tighten policy. We saw an example of this in India a few days ago after a surprise 0.25% interest rate hike.

* Any continued dollar strength will provide a strong headwind to emerging market equities, since it decreases the dollar-denominated return of foreign holdings.

* A number of foreign banking sectors have more deleveraging to do through 2010. Notable examples include Russia, Kazakhstan, Poland, Hungary, and the United Arab Emirates.

* Global excess liquidity is contracting, and investable emerging market funds appear fully deployed.

* There is the potential for a big increase in the supply of emerging market equities as foreign firms tap lofty valuations to raise capital.

* Fund flow momentum has slowed and is unlikely to match the record set in 2009.

* Investors are increasingly concerned over reduced investment in factories and infrastructure in China. Rising inflation is also a worry.

* Earnings revision momentum has turned lower for emerging market stocks.

* The relative valuation of emerging market equities to developed world equities is not as extremely compelling as they were a few years ago.


For the past few months, I've been discussing the sea change that was underway as American stocks were poised to enter a period of relative outperformance compared to foreign stocks. That was the right call to make, and my recommended portfolio profited by selling and taking profits on our heavy foreign allocation late last year.

Since then, we've been increasingly focused on U.S.-based investments to benefit from the strengthening U.S. dollar, retaining only one fund for exposure to the group, which is Indonesia (IDX).

Over the long-term, there is still plenty of potential in the emerging market countries. Once the dollar's climb stalls, in fact, there will likely be very large resurgence by foreign stocks. By then, of course, they will be out of favor and we'll have a great chance to pick up some real values.

http://www.investorplace.com/experts/jo ... en=3879240

[winston]

Emerging Stock Inflows at Six-Month High, EPFR Says (Update1) By Shiyin Chen

April 9 (Bloomberg) -- Emerging-market equity funds attracted the most net inflows in six months amid a strengthening global economic recovery, EPFR Global said.

Funds investing in emerging-market stocks drew a combined $3.27 billion in the week ended April 7, the most since the third week of October and taking net inflows for the year to $10.8 billion, EPFR said in an e-mailed statement. Developing- nation bond funds also posted net inflows for a 22nd straight week, taking in $807 million, according to the statement.

“With optimism about the strength of the global recovery climbing several notches on the back of some encouraging U.S. economic data, investor interest in emerging markets and their commodities stories climbed appreciably during the first week of April,” according to Cambridge Massachusetts-based EPFR, which tracks funds with $13 trillion of assets globally.

China equity funds drew $190 million during the week, the most since late January, ahead of data on the nation’s property prices that may show whether tightening measures have been able to avert an asset bubble, EPFR said.

Elsewhere, Russian stock funds drew net inflows for an eighth week while flows into South Africa and Middle East equity funds climbed to a 28-week and 15-week highs, respectively. Developed-nation equity funds also posted gains, helping to boost net inflows for the year over $4 billion, according to the statement.

In total, all equity funds recorded inflows of $5.69 billion during the week while bond funds attracted $5.07 billion, EPFR said.

http://www.bloomberg.com/apps/news?pid= ... tk9OkedVfA

[winston]

New Optimism for Emerging Markets

Last week we discussed the tactical reasons to be cautious on the emerging market economies. These came courtesy of Credit Suisse analyst Alexander Redman, who spent some quality time on the road meeting with clients. While he said he found a "great deal of evidence'' to structurally support the asset class longer-term, he said he also found "significant shorter term constraints.''

Now we take a look at the long-term reasons to still be bullish on the incredible growth story unfolding in places like China and India. Remember that up until 200 years ago these two great nations housed the two latest economies in the world.

Now, they are poised to retake their position at the top of the chart. Here are 9 reasons Redman is strategically optimistic:

-- Emerging markets now account for over half of global GDP (based on purchasing power parity) and can now take over as the driver of global growth since they are far less indebted than the developed economies.

-- Corporate, household, and government balance sheets in the emerging markets are in much better shape than in the developed world.

-- EM economies still retain significant potential for productivity gains as workers become more educated and more skilled while the capital base becomes more modernized.

-- Superior demographics in the EM economies (i.e., lots of young people and high birth rates).

-- Rising consumption, particularly in non-Japan Asia and the Persian Gulf.

-- Rapid urbanization and significant infrastructure growth.

-- Equalization of living standards, healthcare, and drug spending in the EM economies compared to the developed world.

-- Potential for growth in EM capital markets as new equity and debt issues are released while government investment restrictions are relaxed.

-- Significant potential for upward revaluation of EM currencies, especially China. Foreign currency appreciation will bolster the U.S. dollar denominated returns of foreign holdings for American investors.

( The reasons given above were the same ones that I saw before the Asian Fiancial Crisis as well as the Financial Crisis .. )

Nick Cashmore, a top analyst at CLSA Asia Pacific Markets in Jakarta, told Reuters that the advance in Indonesia recently did not make the stocks overvalued. "It still has the opportunity to grow," he said, citing strength in domestic demand and commodity prices across the resource-rich Indonesian archipelago.

Data released on Thursday showed Indonesia's annual inflation slowing in March to a below-forecast 3.4%, Reuters said, adding to its aura as an emerging market darling due to low rates, subdued inflation, strong growth and political stability.

Eventually IDX and its peers around Southeast Asia, including Thailand (THD) and Malaysia (EWM) will rise into bubble territory, but that is almost certainly at least a year away. You always want to be a part of a bubble while it is happening; too much money is left on the table if you try to leave early. Stay with Indonesia for now.


Source: Money Morning

[winston]

Emerging-market equity funds had inflows of $1.9 billion in the past week.

Latin American funds remained under pressure, with investors pulling out $151 million, amid concern of interest-rate increases in Brazil, according to EPFR.


Source: Bloomberg

[winston]

I saw similar expert analysis just before the Asian Financial Crisis. Nowadays, I want investable ideas not fluff bs ..

The Six Key Drivers of Emerging Markets

Emerging markets are changing the way the world works by developing into global powerhouses. The latest edition of our “What’s Driving?” series identifies the six key drivers and the effect they have on the economic vitality of emerging markets.

What's Driving EM matrix 042310

1. Rapid Economic Growth: In the coming years, growth in emerging economies is expected to outpace that of the developed world. This growth is fueling an increase in household income in places like China and India where nearly 60 million people—roughly the combined populations of Texas and California—are joining the ranks of the middle class each year.

2. High Savings Rates in Asia: Despite rising consumption, households in emerging Asia save 17 percent of disposable income—that’s roughly four times what is saved in the U.S. and much higher than the developed world. These high savings rates allow them to meet the higher requirements for home ownership—many require at least 20 percent down—and have larger amounts of funds to invest in capital markets.

3. Urbanization: The world’s urban population is growing by more than 70 million people each year. China already has over 100 cities with 1 million people and is expected to have over 200 of them by 2025. This urban migration has overwhelmed existing infrastructure like roads, sewers and electrical grids. The buildout of this critical infrastructure will require vast amounts of copper, steel and increase demand for all commodities.

4. Desire for Social Stability: One main goal of emerging market governments to remain in power is to keep the public happy. They are doing this by increasing personal freedoms for citizens and providing them with opportunities to increase their quality of life. Many governments have found the key to social stability is focusing on job creation which establishes a path of upward mobility for citizens.

5. Natural Resources Wealth: Many of today’s most promising emerging nations sit atop some of the largest oil, metal and other valuable resource deposits in the world. Many of these nations have teamed up with private and/or foreign enterprises to bring these resources to market. Revenue generated through taxation and direct ownership allows for these governments to build infrastructure, create jobs and pursue other economic opportunities.

6. Corporate Transparency: A history of corruption and political turmoil has given way to higher standards of corporate governance in today’s globalized world. Though still far from perfect, the improved transparency and oversight has made important information available to investors and reduced uncertainty. By aligning themselves with international business standards and requirements, emerging nations will attract more foreign capital and better integrate themselves into the global marketplace.

These six drivers have helped emerging economies weather the financial crisis and provided them with a blueprint for success as they continue to strive to build economic wealth.

http://www.usfunds.com/investor-resourc ... lk/?i=2787

[kennynah]

I saw similar expert analysis just before the Asian Financial Crisis. Nowadays, I want investable ideas not fluff bs ..

oh well...it's a day job to write these theories...