Emerging Markets 01 (May 08 - Dec 11)

[winston]

Morgan Stanley Advises Selling Mexican, South Korean Stocks By Fabio Alves

Oct. 17 (Bloomberg) -- Morgan Stanley advised investors to sell South Korean and Mexican stocks as a slowing global economy may hurt profit growth in those countries more than their emerging-market rivals.

South Korea's economy ``does not appear to have the strength to offset the export downturn,'' while weakness in Mexico is ``broad-based,'' Morgan Stanley strategist Jonathan Garner wrote in a note to clients today.

The MSCI Emerging-Markets Index has plunged 54 percent this year as losses and writedowns from mortgage-related securities at financial firms worldwide topped $640 billion. The financial crisis prompted Morgan Stanley economists to cut their growth forecasts for the Mexican economy to zero from 3 percent expansion in 2009. They cut their South Korean growth estimate to 3.8 percent from 5 percent.

``The banking sector in Korea is proving more vulnerable than key North Asian peers to the credit crunch due to its reliance on interbank funding,'' Garner wrote. Standard & Poor's on Oct. 15 warned that South Korean lenders will struggle to refinance debt and said Kookmin Bank and six other banks in the country may have their credit ratings cut.

The London-based strategist cut his ratings on South Korean and Mexican stocks to ``underweight,'' meaning investors should own a lower percentage of those shares than in benchmark indexes. They had previously been rated ``equalweight.''

South Korea's Kospi Index has lost 36 percent this year, compared with a 31 percent decline for Mexico's Bolsa.

In Mexico, ``the weak economic background and additional earnings revisions should continue to put pressure on earnings growth expectations into 2009, for a market that is heavily skewed towards the consumer sectors,'' Garner wrote.

He raised Czech stocks to ``overweight'' from ``equalweight'' and upgraded Chilean and Egyptian stocks to ``equalweight'' from ``underweight.''

[millionairemind]

Remember Russia defaulted on its debt in 98 that lead to LTCM failing??

This piece of news might have the potential to move markets. A butterfly flapping its wings might cause a tsunami half way across the world.

Argentina Default Looms as Pension Funds Seizure Roils Markets

By James Attwood and Bill Faries

Oct. 22 (Bloomberg) -- Argentina's planned seizure of $29 billion of private pension funds stoked concern the nation is headed for its second default in a decade.

Investors say President Cristina Fernandez de Kirchner's decision may further hurt markets already reeling from slumping commodity prices and slower growth. The retirement system, set up in 1994 to help bolster capital markets, owns about 5 percent of companies listed on the Buenos Aires stock exchange and 27 percent of shares available for public trading, data compiled by pension funds show.

Full story
http://www.bloomberg.com/apps/news?pid= ... refer=home

[millionairemind]

A couple of very good articles written in this week's Economist on the impact of the credit crunch on emerging markets.

http://www.economist.com/opinion/displa ... d=12471135

http://www.economist.com/finance/displa ... d=12481004

If you are not a subscriber, you can read it for free for a couple of weeks and thereafter it requires paid subscription. If you cannot access the site after these couple of weeks, drop me a note and I will cut and paste it to you in a PM.

[millionairemind]

Financial tempest spreads to the Gulf states
By David Jolly Published: October 26, 2008

The global economic crisis extended its reach into the Gulf states Sunday, as Kuwait suspended trading in shares of a major bank and the Saudi authorities announced a plan to help citizens receive credit.

The Central Bank of Kuwait halted trading in Gulf Bank, one of the country's largest lenders, after a customer defaulted on a derivatives contract. The central bank said it would "strongly support the bank's financial position" and protect depositors, to assure the public that Gulf Bank's business "will not be affected."

In Saudi Arabia, always sensitive to potential unrest, King Abdullah said that 10 billion riyals, or $2.7 billion, would be placed in an account in the Saudi Bank of Credit & Saving to enable the bank to help hundreds of thousands of citizens get loans for family needs including marriages and home repairs.

Middle Eastern governments are mindful of how the crisis has left countries from Iceland to Hungary and Ukraine at the mercy of international creditors. On Sunday, the International Monetary Fund announced an agreement in principle to provide Ukraine with as much as $16.5 billion to meet its balance of payments needs.

Major petroleum producing countries had appeared insulated from the crisis that is shaking the foundations of the international financial system. Oil prices rose for the first half of 2008, giving producers a thick cushion of cash. But after reaching a record of more than $147 a barrel in July, prices have collapsed along with the prospects for the world economy. On Friday, U.S. crude oil futures closed in New York at $64.15 a barrel, falling $3.69 even after OPEC announced that it would cut production by 1.5 million barrels a day.

With the fall in oil prices, the Gulf economies now appear vulnerable.

"This shows the Gulf countries are not immune to the overall problems in financial system," Olivier Jakob, an oil analyst at Petromatrix in Zug, Switzerland, said in an interview Sunday. "If we get below $60 a barrel, some of these countries will suffer."

The moves came as stocks in the region slumped. The benchmark indexes in Qatar and Oman fell more than 8 percent Sunday. Kuwait stocks fell 4.4 percent and Saudi Arabia's main index, which fell 8.7 percent Saturday, fell an additional 1.7 percent Sunday.

Stocks in the Gulf region are off about 40 percent so far this year, in line with the decline in the Standard & Poor's 500-stock index on Wall Street and the 45 percent decline in the Dow Jones Euro Stoxx 600 index.

On Saturday, finance ministers from the Gulf Cooperation Council and central bankers met in Riyadh, the Saudi capital, to discuss a more coordinated response to the crisis. In their communiqué, officials "underlined their confidence in the stability of the monetary system in their countries," and said their economies should continue to grow.

But they also expressed concern that the downturn in the world economy would hit home.

"We should all work to avoid the negative effects and reduce their impact on our economies by coordinating policies and measures," the Saudi finance minister, Ibrahim al-Assaf, told the Saudi Press Agency.

In addition to Saudi Arabia, the Gulf Cooperation Council includes Bahrain, Qatar, Kuwait, Oman and United Arab Emirates.

Globally, banks have posted losses and write-downs totaling $681 billion since the start of the credit crisis, according to Bloomberg News. But so far the damage has been limited in the Middle East. Any big ratcheting up of losses in the region could require governments to bail out their own lenders and dash hopes that sovereign wealth funds from the region would be able to help rescue troubled institutions in the West.

Gulf Bank's chief executive, Louis Myers, said the loss would have "no major effects on the soundness of the bank's financial position, and will not affect its ability to continue business."

Fawzy al-Thunayan, a spokesman for Gulf Bank, said Sunday that the loss was incurred by a Kuwaiti company on a "complicated currency derivative," essentially a bet on the euro. "The position worsened in the last 10 days as the euro dived against the dollar," he added, but the customer had been unable or unwilling to make good its losses.

The bank will not comment on the amount of the loss "until the position is completely closed," he said, and trading in Gulf Bank will remain suspended until the affair is settled. Ibrahim Dabdoub, chief executive of the rival National Bank of Kuwait, told Al Arabiya television the losses were as deep as 200 million dinars, or nearly $750 million.

The crisis could hurt the Gulf states in other ways. KPMG International, the accounting firm, warned last week that financial fraud in the region could run into the billions of dollars a year. Colin Lobo, a KPMG partner said the financial crisis was creating an environment "where the risk of fraud will increase as businesses come under pressure to show results. Likewise, individuals will also be tempted where costs are rising and income levels are flat."

[winston]

MORE STOCKS TO ADD TO THE "REBOUND LIST" by Brain Hunt

Another asset to add to your rebound list… an asset that goes by the name "submerging markets" these days.

The real name for today's rebound asset is "emerging markets." These are stocks in high-growth economies like India, Brazil, and China. When times are good, investors go wild for these stocks and drive them up hundreds of percent. Brazilian stocks, for instance, gained more than 1,000% from 2003 to mid-2008. But when times are bad, emerging markets get destroyed. Brazil is down 70% from its summer high.

Here's the thing about market rallies after a big decline: The assets that have been beaten down the most are the ones that rally the most. Our friend Jeff Clark likens this situation to a basketball pushed down to the bottom of a swimming pool. The farther it gets pushed down, the harder it comes back up.

Emerging markets are now trading for super-cheap levels… most go for less than 10 times earnings and around book value. Like infrastructure stocks, emerging markets have big potential when the stock market puts together a rally.

[winston]

Emerging-Market Stocks Sink in 2008, May Rebound on BRICs Rally By Fabio Alves

Jan. 1 (Bloomberg) -- Emerging-market stocks fell the most ever last year and investors are looking for Brazil, Russia, India and China to lead a reversal in 2009.

The global economic slowdown and slump in commodity prices sent the MSCI Emerging Markets Index tumbling 54 percent in 2008, compared with a 38 percent drop in the Standard & Poor’s 500 Index and a 42 percent loss in the MSCI World Index. Developing- nation stocks are trading near their cheapest levels in a decade.

Mark Mobius at Templeton Asset Management Ltd. and Uri Landesman at ING Groep NV are snapping up stocks of the so-called BRICs on speculation global infrastructure spending and interest- rate cuts will help the economies avoid the recessions hurting developed nations.

“Global rate cuts and stimulus plans are going to drive consumption, which most likely will be spent in infrastructure, thus boosting stocks of materials and energy producers of countries like Brazil and Russia,” said Landesman, who oversees $2.5 billion at ING’s asset management unit in New York.

The 746 companies in the MSCI Emerging Markets Index now trade at 8.5 times earnings, up from 6.1 times on Dec. 4, the cheapest in a decade.

The MSCI BRIC Index lost 58 percent last year after demand for oil, steel, iron-ore, soybeans and other raw materials waned. BRIC is an acronym coined by Goldman Sachs Group Inc. in 2001 to encompass the four emerging markets it predicted would join the U.S. and Japan as the world’s biggest economies by 2050.

‘Wonderful Time’

“We’re having a wonderful time buying tremendous bargains,” Mobius, who oversees about $26 billion as executive chairman of Templeton, said in a Bloomberg Television interview on Dec. 24. “As value investors, this is the best time to be investing.”

The worst U.S. housing slump since the Great Depression and credit losses of more than $1 trillion at financial firms worldwide pushed the global economy into a recession, prompting developed countries to cut interest rates and boost spending.

U.S. President-elect Barack Obama said he will increase spending on roads, bridges and public buildings to create 3 million jobs. The European Union disclosed a 200 billion-euro ($278 billion) stimulus proposal for the 27-nation economy. Japan will spend 10 trillion yen ($111 billion) on its economy while China announced a 4 trillion yuan ($586 billion) investment plan after its economy grew in the third quarter at the slowest pace in five years.

“I’m optimistic; I think we’ve taken our medicine,” said Arthur Byrnes, chairman of Deltec Asset Management Corp. in New York, which manages $750 million. “My view is we’ve seen the bottom and things are very cheap.”

Buy China, Brazil

Merrill Lynch & Co. said this month that even as global fund managers started reducing their allocations for emerging-market stocks for 2009, they are increasing those for equities in China and Brazil.

China’s CSI 300 Index, the biggest gainer in 2007 among 89 global stock markets tracked by Bloomberg, slid 66 percent last year, the first annual decline since it was created in April 2005. The index, a benchmark gauge of companies traded in Shanghai and Shenzhen, soared 162 percent in 2007.

Merrill’s global emerging-markets equity strategist Michael Hartnett said most fund managers were planning to buy shares in China and Brazil and sell those in Mexico and South Korea.

China’s CSI 300 index now trades at 12.6 times earnings, down from a peak of 53.2 times in October 2007. The 66 companies in Brazil’s Bovespa index trade at 8.8 times profit after reaching a high of 17.4 times on May 23.

China’s Economy

The World Bank forecasts China’s economy will expand by 7.5 percent in 2009, while the government is targeting 8 percent growth.

“Economic growth in China will be stronger in the second half of 2009 than people are currently discounting, so the outlook for emerging markets in 2009 is very positive,” Landesman said.

Brazil’s stock market is Landesman’s favorite among the BRICs, followed by Russia and China.

The Bovespa index, which lost almost half its value after reaching a record 73,516.81 on May 20, will rebound this year as the Brazilian central bank cuts borrowing costs to boost consumer demand, according to strategists. Banco Santander SA forecasts the Bovespa to rise 30 percent this year to 49,000.

Energy producer Petroleos Brasileiro SA and miner Cia. Vale do Rio Doce, the two largest stocks in the Bovespa, fell 48 percent and 53 percent last year, respectively. Oil and raw material stocks account for 52 percent of the MSCI Brazil Index.

Russia

Russia’s ruble-denominated Micex Index was the worst performing market among the BRICs, losing 67 percent in 2008, as oil prices plunged to below $50 a barrel after reaching a record of $147.27 a barrel on July 11. Oil company OAO Gazprom, Russia’s biggest publicly traded company, plummeted 69 percent.

“We are maintaining an overweight on Russia because of valuations,” State Street Global Advisors Inc. global investment strategist George Hoguet said on Dec. 12. “The economy is facing strains due to oil but valuations are very, very cheap.”

India’s Sensitive index of 30 stocks had its biggest decline since 1980, when the measure began trading, dropping 52 percent in 2008 after climbing 47 percent the year before. ICICI Bank Ltd., the second-largest lender, fell 63 percent as the rupee slumped 19 percent against the dollar.

“If you look at places like China, India, even Russia, which now seems to be having problems, but they all are sitting on huge foreign reserves,” Mobius said. “They have booming economies, and there’s no reason why, going forward, they should not be the first ones to get the attention of investors.”

[millionairemind]

Zoellick warns of fallout from bank guarantees

By Alan Beattie in Washington

Published: January 27 2009 22:24 | Last updated: January 27 2009 22:24

The financial crisis that erupted in the rich countries has caused investors to pull back money from emerging markets.

Now, says Robert Zoellick, World Bank president, the bank guarantee programmes being launched across the rich world could be further starving the developing world of capital.

“As the developed countries have guaranteed a lot of debt for understandable reasons they have made it harder for developing countries to be able to issue bonds,” Mr Zoellick told the Financial Times. “You’ve seen some [debt] offerings by Mexico and a couple of other countries but they are paying up for it.”

The World Bank, which had been edging away from lending to middle-income countries amid a surge of investment from the private sector, has had to come back. This year Mr Zoellick predicted the bank’s commercial lending arm would increase lending to $100bn (£70bn) over the next three years, two or three times the level in recent years. “We are trying to help the Mexicos, the Indonesias and others to try to have some modest deficit financing. At a time when the other financial institutions in the world are in turmoil, we can lean forward to help.”

The bank has been tweaking its lending practices to try to provide a form of insurance for countries that want to protect long-term infrastructure investment plans, or keep government welfare payments going, despite the lack of private capital. “Some of the lending programmes we are offering are designed to offer them contingent financing,” Mr Zoellick said. “If Indonesia wanted a budget deficit of 2-3 per cent of GDP [gross domestic product], they would know if they couldn’t access the market we would be there to provide.”

But with the bank and its sister institution, the International Monetary Fund, having become smaller in relation to the private capital markets as time has gone on, they will struggle to fill the gap on their own. The forecasts released on Tuesday by the Institute of International Finance show private net capital flows to emerging markets collapsing from $928.6bn in 2007 to $165.3bn this year. Even an increase in World Bank lending to $35bn a year can only fill a small part of the gap.

“The official sector didn’t scale up when the private sector scaled up during the boom years, so it can’t play as big a counter-cyclical role as it should,” said Brad Setser, a former US Treasury official and expert on emerging market finance at the Council on Foreign Relations.

Mr Zoellick has called for a part of the government money being raised for stimulus budgets to be diverted to a “vulnerability fund” to support poorer countries – a figure based on the longstanding target for rich countries to raise their aid flows to 0.7 per cent of national income.

Copyright The Financial Times Limited 2009

[millionairemind]

Downgrades Loom for Hungary, Poland, Czech Bonds, Yields Show
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By Laura Cochrane

Feb. 18 (Bloomberg) -- Hungarian, Polish and Czech government debt, among the highest rated in emerging markets, have already been downgraded by bondholders.

Investors are demanding 1.35 percentage points more yield to own Hungary’s bonds than similar-maturity Brazilian debt, which is rated four levels lower by Moody’s Investors Service, JPMorgan Chase & Co. indexes show. The risk of Poland defaulting is about the same as the Philippines, whose credit rating is six levels lower, based on prices for credit-default swaps. The Czech Republic’s 10-year bonds yield the most compared with German bunds since 2001.

Investors who lost 18 percent on emerging-market sovereign and corporate bonds last year based on Merrill Lynch & Co. indexes now face steeper declines in Eastern Europe, said Lars Christensen, head of emerging-market strategy at Danske Bank A/S in Copenhagen. While the region’s integration with the European Union spurred foreign investment earlier this decade, Poland’s currency weakened 42 percent against the euro since August, the Czech economy cooled to the slowest pace in almost 10 years in the fourth quarter and Hungary required a bailout from the International Monetary Fund.
http://www.bloomberg.com/apps/news?pid= ... refer=home

[millionairemind]

Asian Crisis Part II - Eastern European Version..

February 19, 2009
Eastern European crisis may put us all in the goulash
Ian King, Deputy Business Editor

After building quietly for months, the next stage of the global financial crisis is upon us, with the economies of Eastern Europe the latest to be hit. Hungary's stock market fell by 7 per cent yesterday and its Czech equivalent by nearly 4 per cent - while Poland, earlier down by almost six 6 per cent, rallied only once Warsaw had sold some of its euros on foreign exchange markets to prop up the zloty.

The trigger for this chaos was comments on Tuesday from Moody's and Standard & Poor's, the ratings agencies, articulating the concerns many observers have had in recent months. Having enjoyed a boom in the past decade, demand for the region's exports has collapsed and investment with it, while job losses are rising - one reason why not all the Poles have yet left Britain for home.

All this means that doubts over whether the governments and companies of Central and Eastern Europe will be able to service their debts are very much to the fore. Much of the borrowing in these countries during the bubble was not done in their own currencies but in others, such as the euro and the Swiss franc, which means that there will almost certainly be defaults.

The zloty, for example, has lost a third of its value against the euro since last summer, with Hungary's forint down 23 per cent and the Czech crown down by about 17 per cent in the same period.

The impact of these debt defaults will be felt fiercely in some Western European economies, particularly Austria, whose banks have lent the equivalent of a quarter of the country's GDP to the region. Sweden's banks are also heavily exposed. Consultancy Capital Economics calculates that Swedish banks have lent $90 billion (£63 billion) - nearly one fifth of Sweden's GDP - to “high-risk” countries, mainly in the Baltics, while the banking systems of many of the worst-hit economies, including those of Estonia, Slovakia and Lithuania, are now almost entirely foreign-owned.

While Raiffeisen and Erste Bank, of Austria, are regarded as the two institutions most significantly at risk, it is not just the Viennese who risk seeing their capital waltz off into oblivion. ING, the Dutch bank, Commerzbank, of Germany, and Société Générale, of France - which owns the Russian Rosbank - all saw their shares fall yesterday amid mounting concerns over their exposure to the region. Italy's UniCredit and Belgium's KBC are also heavily exposed.

Apart from the damage to some Western European banks, other companies may also be wounded, such as Telekom Austria, which expanded east amid tough competition in their home markets. And there are other ways in which contagion could spread. Manufacturers in Germany - the linchpin of that country's economy - will suffer as Eastern European rivals enjoy a boost in competitiveness as their currencies collapse in value against the euro.

The bursting of this bubble may damage Britain less severely than other EU nations. While Irish buy-to-let investors were buying up most of Bratislava, Austrian banks were buying their Romanian equivalents and German and French manufacturers were opening plants from Bucharest to Brno, the only British activity in the region seemed to consist of flying to such locations for stag weekends.

That is not to say that this crisis will not drop us in the goulash, too. The crisis was already highlighting the inflexibility of eurozone membership, particularly for those less competitive member states such as Italy and Portugal, who - unlike Britain and Sweden - are unable to devalue their way out of their problems. This has not gone unnoticed - and, in a speech last night, Lorenzo Bini Smaghi, the ECB executive board member, was muttering ominously that the ability of some EU countries to devalue their currency, gaining an economic advantage, was putting the single market's integrity at risk.

Taken to their logical conclusion, his comments sound dangerously like a call to protectionism.

[winston]

Emerging Stocks Are ‘in Vogue,’ CLSA Says: Technical Analysis By Chen Shiyin

April 2 (Bloomberg) -- Emerging markets are “back in vogue” and set for six months of gains, according to the “breadth” indicator used by CLSA Asia-Pacific Markets to predict rebounds.

The MSCI Emerging Markets Country Breadth gauge turned bullish as 20 percent of the countries in the benchmark index climbed above their 40-week weighted moving average after a decline to less than 10 percent, CLSA analysts Laurence Balanco and Tiara Fontanilla wrote in a report yesterday. They advise investors to “overweight” China, Taiwan and South Africa.

“Evidence continues to mount that investors are moving back into emerging markets,” the analysts wrote. The gauge “has improved for the first time in 15 months,” they said.

The MSCI Emerging Markets Index rallied 14 percent in March, the best monthly advance since December 1993 and almost twice the 7.2 percent added by the MSCI World Index. Funds investing in developing markets drew $2.3 billion in the week ended March 25, the highest inflows this year, according to data compiled by Cambridge, Massachusetts-based EPFR Global.

CLSA’s MSCI Emerging Markets Country Breath indicator has shown buy signals five times since 1997. On the previous five occasions, the benchmark index yielded an average return of 4.6 percent over the next month and 16 percent over the next six months, CLSA said.

The emerging markets gauge is also on an “uptrend” relative to the MSCI World Index, the brokerage said. A recent “break” above its 40-week exponential moving average paves the way for “a test of the 2008 highs,” about 10 percent higher than current levels, the report said.

Using the same analysis, Chile, China, Israel, Malaysia, Morocco, Peru, the Philippines, South Africa and Taiwan are attractive relative to the MSCI Emerging Markets Index, the CLSA analysts said.

Investors use moving averages of closing prices over different periods to predict levels of resistance and support for prices.