Emerging Markets 01 (May 08 - Dec 11)

[millionairemind]

ublished July 6, 2009

Emerging markets take record share of world equity
MSCI Emerging Markets Index up 35%, indicates confidence in BRIC


(LONDON) Developing countries' share of worldwide equity value climbed to a record as the fastest-growing economies lured investors amid the first global recession since World War II.

The 22 nations classified as 'emerging' by index provider MSCI Inc comprised 24 per cent of world market capitalisation, up from 18 per cent at the start of this year, the highest proportion since Bloomberg began compiling the data in 2003. China shares surpassed US$3 trillion last Thursday for the first time since August, from US$1.8 trillion at the end of 2008.

The increase signals growing confidence in developing countries as equity investors, spurred by interest rate cuts and stimulus plans, redeploy cash after the worst US losses last since the Great Depression.

The MSCI Emerging Markets Index rose 35 per cent, beating a 2.9 per cent advance in the MSCI World Index of developed economies and lifting the value of stocks to US$8.6 trillion from US$5.1 trillion in 2008.

'Everyone is trying to jump on that bandwagon,' said Nicholas Field, who helps manage about US$11 billion in emerging-market stocks at Schroders plc in London. 'There are projects in emerging markets in which I can make more money than I can in the West at the moment.'

Developing economies will probably expand 1.6 per cent as a group this year and 4 per cent in 2010, according to the Washington-based International Monetary Fund (IMF). Developed nations will contract 3.8 per cent in 2009 and have zero growth next year, the IMF forecast in its April World Economic Outlook report.

Investors poured a record US$26.5 billion into developing-nation stock funds in the second quarter, with China receiving US$3.8 billion, according to data released last Thursday by EPFR Global. The funds overall attracted US$972 million in the week ended July 1, resuming net inflows after the first decline since March the previous week, the Cambridge, Massachusetts-based research firm said.

China's market capitalisation has jumped more than fivefold from about US$500 billion at the end of 2003, according to Bloomberg data that includes common and preferred stock. The Chinese economy more than doubled in that time to US$3.8 trillion, according to the World Bank.

The world's third-largest economy after the US and Japan has been boosted by a four trillion yuan (S$848.8 billion) stimulus package and five reductions to the key one-year lending rate in the last four months of 2008. The Shanghai Stock Exchange Composite Index rose 70 per cent this year.

Investors should buy emerging-market equities rather than European stocks to benefit from China's stimulus measures and a rally in commodities, Fortis Investments strategists Joost van Leenders said last Thursday, adding to his already 'overweight' position in developing economies. Fortis manages about US$240 billion.

The Reuters/Jefferies CRB Index of 19 raw materials rose 13 per cent in the three months to June 30 after falling for three quarters.

The MSCI Emerging Markets Index was little changed last Friday, adding 0.09 per cent at 4.10 pm in London. It plunged a record 54 per cent in 2008 as the financial crisis, which started with the collapse of the US property market in 2007, triggered more than US$1.47 trillion of losses at financial institutions worldwide and led to the seizure of global credit markets.

Some US$67 billion was pulled out of emerging- market equities and bond funds in 2008, EPFR data shows. Investors returned to become net buyers of emerging-market stocks this year on prospects of government stimulus plans, interest rate cuts and the potential of as much as US$750 billion in IMF support.

'A lot of emerging economies came into this credit crisis with a strong build-up of reserves and they are better able to create economic stimuli from savings, rather than from borrowed money like the developed markets,' said Hugh Hunter, head of global emerging markets at Blackfriars Asset Management in London, who manages US$1.5 billion. 'This will lead to significant outperformance of emerging markets.'

The IMF has so far pledged more than US$75 billion to bail out economies hurt by a lack of credit and plunging exports. Romania, Hungary and Ukraine got a combined US$50 billion in aid.

All 10 of the world's best-performing indexes in the second quarter are developing markets, led by Ukraine, Vietnam and Kazakhstan, according to data tracked by Bloomberg.

'You have to remember how much emerging markets fell and how much capital was withdrawn last year, so some of it is a kickback from that,' Schroders' Mr Field said.

Brazil, the world's eighth-largest economy, has reduced taxes and cut the benchmark interest rate at all four policy meetings this year in a bid to help Latin America's largest economy recover. The market capitalisation of the nation's shares reached a year-high of US$952 billion last month and was at US$920 billion last Thursday, Bloomberg data show.

The Reserve Bank of India, the fourth-biggest emerging economy, reduced borrowing costs six times in seven months and the government announced three stimulus packages comprising about 7 per cent of gross domestic product (GDP). The market capitalisation of Indian equities is at US$989 billion after reaching a 10-month high of US$1 trillion last month.

Russia's government has allocated US$81 billion in stimulus spending this year on loans, state aid and subsidies to battle an economic contraction of 10.2 per cent in the first five months of the year, when industrial production slumped a record 17.1 per cent in May.

The country's Micex Index last month became the world's first benchmark equity index to enter a bear market since global stocks began rallying in March, tumbling more than 20 per cent from a June 1 peak. The Micex dropped 2 per cent last Friday to an eight-day low. Russia's shares have a market capitalisation of US$339 billion.

The annual GDP of India and Brazil have more than doubled since 2003, while Russia's economy has more than tripled to US$1.6 trillion. -- Bloomberg

[winston]

On CNBC, yesterday, one of the parrots there, was talking about how concerned he's with the US economy and how he has pared down his US Equities holding.

When asked where he's putting his money now. He said, "Emerging Markets". He thinks that the growth will be in the Emerging Market and that's where he wants to put his money..

Do you know what you are buying ? Do you know how the growth in the Emrging Market came about ? China, Russia, India, Brazil and Indonesia etc. are suddenly going to have the consumption power, to replace the Americans, Europeans and Japanese ?

15 years ago, people were talking and focussing on the "Asian Tigers". After the first batch got slaughtered during the AFC, there's another batch of suckers now waiting in line..

This is a very good case of "Ignorance". That talking head should stick with US Equities as he knows that market well. Once he steps out of his field of competence, he will be slaughtered. Winds me up when I see idiots like that on CNBC ..

[winston]

Funds that invest in so-called emerging markets like China and Brazil, among the best performing in recent months, were also hit with investors yanking about $540 million for the week amid doubts about the recovery's strenghth.

===========================================

US$0.5b is nothing lah ...

[winston]

Emerging-Market Stock Funds Post Outflows, EPFR Says (Update1) By Shiyin Chen

July 10 (Bloomberg) -- Emerging-market equity funds posted outflows for the second time in three weeks on growing doubts the global economy will recover soon, EPFR Global said.

Investors withdrew $365 million from funds investing in Asia excluding Japan in the week ended July 8, the research firm said in a statement yesterday. They pulled $307 million from Latin America stock funds, more than offsetting inflows into global emerging-market and Europe, the Middle East and African funds.

The MSCI Emerging Markets Index is down 3.2 percent this week, extending a retreat from its June 1 high to 7.3 percent, as the U.S. job market worsened and Japanese machinery orders unexpectedly dropped. Benchmark indexes in Russia and India are among those that have entered a so-called correction after slumping more than 10 percent from their highs this year.

“Fresh doubts about U.S. appetite for emerging markets exports and global demand for raw materials prompted investors to pull some money off the table in early July,” EPFR said in the statement.

Emerging-market funds attracted a record $26.5 billion last quarter as China’s “aggressive” measures spurred confidence in developing economies, EPFR said on July 2. The MSCI Emerging Markets Index soared 34 percent during the three months ended June 30, its best performance since the measure was created.

China equity funds also lost $424 million in the week ended July 8, while Brazil outflows totaled $244 million, the research company also said. Funds investing in Russian stocks attracted “modest sums,” while India stock funds lured $52 million following the release of the government’s budget, it added.

Earnings Season

Overall, investors withdrew $1.87 billion from equities and added $2.95 billion to fixed income, according to Cambridge, Massachusetts-based EPFR. The research company tracks funds with $10 trillion in assets.

“With vacations looming and the second-quarter earnings season starting, both market and fund flow data painted a picture of investors heading to the sidelines,” EPFR said.

[millionairemind]

Wonder if this little piece of report spooked the run...

Emerging Markets Priciest Since 2007 When Shares Fell (Update1)
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By Adria Cimino and Michael Patterson

July 13 (Bloomberg) -- The last time stocks in developing countries got this expensive was in October 2007, just before the MSCI Emerging Markets Index began a 12-month tumble that erased half its value.

The MSCI gauge trades at 15.4 times reported earnings, compared with 14 for the Standard & Poor’s 500 Index, according to weekly data compiled by Bloomberg. When developing nations last commanded a premium, the 22-country benchmark sank 54 percent in the next year.

Groupama Asset Management, Palatine Asset Management and Standard Life Investments say the disparity means investors are paying too much for shares from China to India to Brazil at a time when the global economy is contracting. MSCI’s emerging- market gauge is valued at 1.7 times its companies’ net assets after a 34 percent surge last quarter, the highest on record compared with the MSCI World Index of 23 advanced economies, which trades for 1.5 times, data compiled by Bloomberg show.

“Emerging-market stocks are at risk,” said Matthieu Giuliani, a Paris-based fund manager at Palatine, which oversees $5.56 billion. “You should only pay so much for growth.”

Investors are already starting to show a lack of confidence in a continued rally. MSCI’s developing-nation index has dropped 9.7 percent from its 2009 high on June 1, while the MSCI World fell 7.7 percent and the S&P 500 retreated 6.8 percent.

Emerging-market funds had $540 million of net outflows in the week ended July 8, the second time in three weeks investors withdrew money, according to Cambridge, Massachusetts-based EPFR Global, which tracks funds with $10 trillion worldwide.

Volatile Returns

All 22 emerging-market currencies tracked by Bloomberg depreciated against the yen in the past month, and 16 weakened against the dollar. The yen usually attracts investors during economic turmoil because Japan’s trade surplus makes the nation less reliant on overseas lenders, while the dollar benefits from its status as the world’s reserve currency.

While developing nations’ economies grew an average 1.7 times faster than developed countries in the past 20 years, their stocks traded at a discount because their economies and returns were more volatile.

Brazil’s annual inflation averaged more than 1,000 percent in the 1990s, and South Korea required a $57 billion bailout from the International Monetary Fund during the Asian financial crisis of 1997.

Bull Markets

The MSCI emerging-market index had 13 bull-market rallies of at least 20 percent and 12 bear-market declines of the same magnitude since its inception in December 1987, according to data compiled by Birinyi Associates Inc., the Westport, Connecticut-based research and money management firm founded by Laszlo Birinyi. That compares with five bull markets and four bear markets for the S&P 500 during the same period.

Developing nations led the worldwide rally in equities last quarter, with China’s Shanghai Composite Index adding 25 percent and India’s Bombay Stock Exchange Sensitive Index jumping 49 percent. The gains outpaced a 20 percent rise in the MSCI World and a 15 percent advance in the S&P 500.

The increase cut the dividend yield of the emerging-market gauge to 3 percent, compared with 3.5 percent for developed countries. MSCI’s emerging-market index fetches 1 times sales and 6.6 times cash flow, compared with 0.8 and 4.3 in the advanced gauge, data compiled by Bloomberg show.

“Gains came too quickly in the context of a slow economic rebound,” said Romain Boscher, who helps oversee $119 billion as a director at Groupama in Paris. “Valuations are now high, and that leaves the door open for a drop. Emerging and developed markets are at risk.”

Record Share

Developing nations’ share of global equity value climbed to an all-time high this month as investors poured in a record $26.5 billion last quarter, according to data compiled by Bloomberg and EPFR.

The infusion helped Beijing-based oil producer PetroChina Co. climb as much as 39 percent in Hong Kong trading this year and overtake Exxon Mobil Corp. as the world’s largest company by market capitalization. PetroChina’s shares are valued at 11.3 times earnings, compared with 7.7 for Irving, Texas-based Exxon as of July 10.

PetroChina, which traded at a discount to Exxon as recently as April, is one of five Chinese companies ranked among the world’s 10 biggest by market value. The rest are in the U.S.

Itau Unibanco Holding SA in Sao Paulo, Latin America’s largest bank by market value, trades at 2.7 times net assets, more than double the 1.1 price-to-book ratio for Banco Santander SA. The Santander, Spain-based lender got 33 percent of its net income from Latin America in the first quarter and is the world’s 10th-biggest financial company by market value.

Growth Premium

For Carmignac Gestion’s Eric Le Coz, emerging-market equities deserve a premium because the economies are the only ones projected to grow this year. Financial institutions in developing nations also avoided most of the credit freeze that caused almost $1.5 trillion of writedowns and credit losses since 2007, according to Bloomberg data.

Le Coz’s firm is buying shares of Beijing-based China Construction Bank Corp., which trades for 2.4 times book value, and Bharat Heavy Electricals Ltd., the New Delhi-based manufacturer of power-plant equipment that’s valued at 31 times earnings.

The Washington-based IMF estimates developing economies will grow 1.5 percent as a group this year and 4.7 percent in 2010, while advanced economies will contract 3.8 percent in 2009 and expand 0.6 percent next year.

Not as Fragile

Emerging markets “should be more expensive,” said Le Coz, who helps oversee $28 billion as a member of the investment committee at Carmignac in Paris. “In the past, emerging markets were fragile. Today that’s not the case.”

Brazil, which defaulted on its foreign debt twice since 1983 and devalued its currency in 1999, now has an investment- grade credit rating from S&P and Fitch Ratings. Moody’s Investors Service said this month it may upgrade Latin America’s biggest economy.

China surpassed Germany in 2007 to become the world’s third-largest economy. Russia has $409 billion of foreign exchange reserves and India has $253 billion, the world’s third- and fifth-biggest holdings, according to Bloomberg data.

Developing nations traded at a discount to American equities from 2001 to 2006 even after their economies expanded at almost three times the pace, according to Bloomberg and IMF data. They moved to a premium in October 2007, the peak of a five-year advance that sent the MSCI gauge up fivefold. The index’s drop in 2008 was almost 16 percentage points steeper than the S&P 500’s 38 percent slide, the worst since 1937.

‘Grave’ Prospects

When emerging-market valuations climbed above the U.S. in 1999 and 2000, it foreshadowed the end of a seven-year global rally. The MSCI developing-nation index sank 37 percent in the 12 months after March 2000, compared with a 23 percent slide in the S&P 500.

The Washington-based World Bank spurred a worldwide sell- off last month after warning of “increasingly grave economic prospects” for developing nations and predicting the global economy will contract 2.9 percent this year, compared with a previous forecast of a 1.7 percent decline.

Equities sank on July 2 as the U.S. government said the economy lost 467,000 jobs last month, 102,000 more than the median economist’s estimate.

Emerging markets “are still dependent on exports and the health of wealthy countries,” Palatine’s Giuliani said. The European Union was the biggest export market for Brazil, Russia, India and China as of 2007, the last period the data were available, according to the Geneva-based World Trade Organization. The U.S. was the second-biggest market for Brazil, India and China.

‘Run Too Far’

Shares in developing nations are the most vulnerable to further declines because prices “have run too far ahead” of a recovery in profits, according to Standard Life’s Jason Hepner.

Companies in the MSCI emerging-markets index that reported results since the end of the first quarter posted an average earnings drop of 92 percent, trailing analysts’ estimates by 14 percent, according to Bloomberg data. That compares with a 46 percent profit slide for Europe’s Dow Jones Stoxx 600 Index and a 31 percent fall for the S&P 500, Bloomberg data show.

“We favor the more defensive markets like the U.S.,” said Hepner, an Edinburgh-based money manager at Standard Life, which oversees about $178 billion worldwide and has a “very light” position in emerging-market equities.

While BlackRock Inc.’s Bob Doll projects developing-market equities will be the most attractive stock investments over the next few years, he says they may lead a short-term retreat as investors reduce expectations for an economic recovery.

“A lot of risk assets are ahead of themselves,” said Doll, vice chairman and chief investment officer of global equities at New York-based BlackRock, which had $1.3 trillion under management as of March 31. “Almost always, what goes up the most, pulls back the most.”

[kennynah]

so...supposing money coming off and out of emerging markets...then where would it go into ???

[winston]

Commodities, Cash, Corporate Bonds, Asian Properties

[kennynah]

KTV sessions....

[winston]

TOL:-

Just a few weeks ago, the parrots on CNBC and Bloomberg, were saying that the Emerging Markets were due for a big fall. What happened ?

If you cant trust the parrots, cant trust the charts, cant trust the analysts, cant trust your own judgement, what can you trust ?

[kennynah]

TOL too :

better dont watch too much of CNBC, Bloomberg and the likes... except to occasionally fade the trades...

can consider watching this instead...my all time favourite TVB serial:

网中人 （1978）