Emerging Markets 01 (May 08 - Dec 11)

[winston]

Jonathan Garner (Morgan Stanley): Risk/reward for EM equities deteriorating

“It is time to take profits on emerging market (EM) equities following a 12% gain since the end of January, says Jonathan Garner, analyst at Morgan Stanley.

“He continues to believe in a core thesis of EM economic and stock market decoupling, but says the near-term risk/reward trade-off for EM equities has deteriorated.

“Firstly, Mr Garner says, the economic situation in the US and Europe continues to darken, threatening a bout of contagion in the short term. He adds that inflationary pressures within the largest EM countries are proving slower to abate than hoped, introducing more policy rate risk.

“EM equity valuations have returned close to long-term averages – and the MSCI EM stock index has recently been trading within 5% of Mr Garner’s year-end target of 1,250. Furthermore, he says, earnings revisions breadth has deteriorated, suggesting downside risk to consensus earnings per share growth expectations for 2008.

“Finally, the US dollar has been strengthening slightly, providing an opportunity to take profits in key EM currencies in Asia ex-Japan and elsewhere.

“‘We are downgrading our stance on EM equities to 2% overweight from 4% overweight,’ Mr Garner says.

“‘We continue to advise focusing regionally in Asia on Korea and Taiwan, in Latin America on Brazil, and in Europe on Russia. At sector level, we prefer energy, materials, telecoms and selected industrials.’”

Source: Jonathan Garner, Morgan Stanley (via Financial Times), May 13, 2008.

[winston]

Capital International Raises $2.25 Billion for Emerging Markets
By Jason Kelly

May 19 (Bloomberg) -- Capital International Inc., a unit of Los Angeles-based asset manager Capital Group Cos., raised $2.25 billion for private-equity investments in emerging- markets, four times the size of its previous fund.

The fund collected commitments from more than 70 institutions, including the Pennsylvania Public School Employees' Retirement System and Lockheed Martin Corp. Master Retirement Trust, the London-based firm said in a statement today. It's the fifth fund opened by its Capital International Private Equity Funds arm, which has invested $1.8 billion in 67 companies since 1992.

Private-equity investors are pushing into new markets as deal-making slows in the U.S. and Europe. Fund managers raised $163.5 billion in the first three months of 2008, the second- biggest quarter since London-based Private Equity Intelligence Ltd. started tracking the data in 2003.

``The universe we're talking about is half the global economy,'' Jim McGuigan, a Capital International partner, said in an interview. ``The countries are becoming much stronger and much more fiscally responsible.''

Capital International agreed in March to buy a stake in OAO Unimilk, Russia's second-biggest dairy company. The firm typically seeks what McGuigan called ``influential minority'' stakes, serving on boards of directors and investing with existing management teams.

Carlyle Group and TPG Inc. are among buyout firms pushing deeper into emerging markets. Carlyle Group, the Washington- based firm run by David Rubenstein, is raising a $750 million fund for Middle East investments. David Bonderman's TPG of Fort Worth, Texas, completed its first deal in Russia this year, buying an $800 million stake in drug distributor SIA International Ltd.

Little Leverage

Capital International Private Equity, opened in 1992, targets investments of $50 million to $250 million. Transactions of that size and in emerging markets typically require little or no debt, McGuigan said. That eases deal-making at a time when investment banks remain skittish about committing debt for leveraged buyouts in excess of $5 billion.

Capital International's previous private-equity fund raised $618 million. Capital Group is also the owner of American Funds, the third largest U.S. manager of mutual funds, after Boston- based Fidelity Investments and Vanguard Group Inc. of Valley Forge, Pennsylvania.

[winston]

EMERGING MARKETS REMAIN ATTRACTIVE
22/05/2008 by Li Shulin

Despite global turbulence, the good fundamentals and attractive valuations for Emerging Markets make them one of the most exciting investment opportunities in the world, according to Schroders’ Head of Emerging Market Equities, Mr. Allan Conway.


How would you rate the growth prospects for emerging markets versus developed markets?

Emerging markets (EM) have outpaced developed markets in terms of economic growth and this trend looks set to continue, aided by greater intra-regional trade and buoyant domestic demand. In fact last year, the EM region was a key driver of global growth, accounting for over 60 per cent* of the latter and outstripping the contribution from industrialized countries.

Traditionally, the U.S. economy has been a key source of demand for exports from the EM region. Since June 2006 however, intra-regional trade in the EM region has surpassed trade with the industrialized economies and the trend looks set to gather momentum. To date, intra-regional trade in the EM region stands at around US$275 billion per month. China itself has accounted for a greater share of emerging Asian** exports compared to the U.S. since 2004.

Buoyant domestic demand has also helped to cushion the EM region from the slower demand in developed markets due to the U.S. credit crunch. In addition, the working age population (age group of 15 – 64) in the EM region is expected to continue growing until 2040 whilst that of the developed countries will start declining from 2010. The ratio of the working age population in the EM region to developed countries is around 4:1 presently which translates to greater potential for consumer spending growth in the former, compared to the latter.


If the U.S. credit crisis worsens, how will it impact equities in emerging markets?

Even though the U.S. credit crunch has taken its toll on economic growth in developed markets, the EM region continues to enjoy robust and significantly higher growth.

Schroders’ house view of economies like the United States, United Kingdom and Europe is that they will continue to see further deterioration and more sub-prime related write-offs in the near term. Stock markets in these developed countries will remain volatile and are likely to stabilise only around the last quarter of this year.

While economies in the EM region are more insulated to a slowdown in developed regions, the equity markets in the former may also see more volatility and possibly more downside. This is because investors who have enjoyed significant gains from equity markets in the EM region may take profits on these markets if risk aversion increases due to a sharp economic slowdown in the West. However, we would regard any period of weakness in emerging markets as a buying opportunity for medium to longer term investors.


Does the strong economic fundamentals in the emerging markets bolster the case for investing in the region?

It certainly does. The region has seen significant improvements since the last crisis in 1997. Macroeconomic fundamentals have improved significantly, and financial institutions are well placed to handle a global economic slowdown.

For example, the EM region has seen a significant improvement in current account balances and its foreign reserves are currently at a record high of around 32 per cent of GDP.

In addition, the region’s foreign debt as a percentage of GDP has declined sharply to slightly over 20 per cent since 2000. Overall, all these point to huge improvements in the fundamentals of the EM region and puts it in a better shape to implement policies to cope with the global slowdown should the need arise.


So you see any sharp dips in emerging markets as an opportunity to buy?

While equity markets in the EM region have corrected along with the developed countries this year, this pullback might just be an opportunity for medium-to-long-term investors.

With an average price/earnings ratio of about 12 times for EM equities, earnings growth of around 17% and with the region’s economic growth projected to exceed developed markets by at least 3.5 per cent for some time to come, stock markets in the EM region are looking more attractive than their developed market counterparts. The return-on- equity in the EM region is also rising despite the global difficulties and it is well above borrowing rates, which is another factor in favour of EM equities.

Against a backdrop of strong economic fundamentals, a lesser reliance on the developed economies and a show of strong performance over the last few years, EM equities should continue to be attractive for investors with a medium- to long-term investment horizon.


What are the risk factors that investors have to bear in mind?

Whilst there are more than enough substantive reasons to support investments in EM equities, two risk factors should be borne in mind.

Inflation is one risk factor for EM equities giving the sharp rise in commodity prices. If inflation is left unchecked, and if it outstrips income and productivity growth, central banks might have to resort to monetary tightening which will hurt EM equities.

In addition, to date, a weakening of the US dollar has benefited EM equities because a weaker U.S. dollar and easier U.S. monetary policy supports global liquidity, benefiting EM equities more than other regional markets. By the same token, should the US dollar rebound significantly, this will weigh on EM equities. The consolation is that even if there is a U.S. dollar rebound, it may not be sustainable and may only be a short-term phenomenon as structural imbalances in the U.S. may eventually reassert their influence on its currency.


So in summary, you see better prospects for emerging markets compared to developed markets?

With the full scale of the global financial turmoil still relatively unknown, markets are likely to remain volatile. However, the present turmoil is likely to affect the developed economies more than the EM region.

A couple of reasons lend support to this: firstly, the EM region has become less reliant on the developed economies for their growth and the buoyancy of the region’s domestic demand has helped it to cushion a slowdown in external demand. In addition, with strong fundamentals in place, economic and earnings growth potential in the EM region looks more promising than developed markets in the medium- to long-term.

That said inflationary pressures and a potential rebound of the U.S dollar may weigh on EM equities in the short-term. However, these risks do not diminish the attractiveness of EM equities in the medium- to long-term.

* World GDP growth contribution (based on IMF PPP weights)

** Includes Taiwan, South Korea, Thailand, Singapore, Malaysia, Indonesia and the Philippines

[kennynah]

jjst share a ETF that invests in stocks of Emerging Markets

pls see this from a TA point and it does not hold any long term view in my comments...nor is it meant to intentionally contradict above posts...

[kennynah]

then.....

Hidden Content:

and now....

[ishak]

Emerging Markets-Equities fall 1.5 pct, Turkey in focus

LONDON, Sept 1 (Reuters) - Emerging equities fell 1.5 percent on Monday, pressured by oil prices, developed market stocks and steep falls in China and South Korea, while geopolitical jitters extended to Turkey.

Oil rose $1 a barrel as Hurricane Gustav shut U.S. Gulf fields and developed European markets <.FTEU3> fell, led by banks as Commerzbank shares tumbled more than 7 percent after it agreed to buy Dresdner Kleinwort.

"People are still worried about the global economic picture with conditions in the United States and Europe looking particularly bad," said Nigel Rendell, emerging markets strategist at Royal Bank of Canada.

"Central and eastern Europe have really been reassessed."

Eastern European markets are feeling the pressure of a euro zone slowdown to the west and political concerns to the east.

The EU is holding an emergency summit on Russia on Monday and EU leaders are set to issue a tough verbal condemnation of Moscow over the conflict in the Georgian breakaway region of South Ossetia.

However, oil boosted Russian stocks, which rose 1.5 percent <.IRTS>, and Commerzbank said it would use every chance to expand in central and eastern Europe, either through organic or external growth. [ID:nWEA7900]

CHINA, KOREA
Emerging equities were also dragged down by steep falls in Chinese <.SSEC> and Korean <.KS11> stocks.

Chinese shares slid 3 percent after corporate earnings for the first half confirmed a trend of slowing earnings growth, while Korean stocks plunged 4 percent on fears of capital flight and a worsening balance of payments due to
high commodity prices.

Senior officials from South Korea's government, central bank and financial regulatory authority will meet on Tuesday to discuss turmoil in equity, currency and bond markets.

Emerging sovereign debt spreads steadied at 299 basis points over U.S. Treasuries <11EMJ>, with markets subdued by the U.S. Labour Day holiday on Monday.

TURKEY TROUBLE?
Turkey came under scrutiny after it said it would introduce trade measures against Russia on Monday, in retaliation for Russia's holding of thousands of Turkish trucks for inspection at border customs posts
[ID:nL1338597].

Russia has denounced as a "provocation" a U.S. and NATO naval presence in the Black Sea, entry to which is via the Turkish-controlled Bosphorus Strait.

Analysts at Unicredit recommended buying 6-month euro/lira call options, in part "to take relatively cheap medium-term bearish exposure to a country which is rapidly moving into the geopolitical spotlight", they said in a client
note.

The lira was trading close to 6-month lows against the euro , though it was steady against the dollar .

Turkey's five-year credit default swaps, used to insure against restructuring or default of debt, widened by around 2 basis points to 267-272 bps, a European bank trader said.

The Hungarian forint, meanwhile, fell against the euro after weekend political wrangling raised the risk the Socialists' minority government could collapse.

The Israeli shekel dropped 1 percent to a 4-1/2 month low against the broadly stronger dollar , as Israel's foreign currency reserves jumped in August.

The Bank of Israel said it bought $1.9 billion as part of its plan to increase its foreign currency reserves over the next two years.

[millionairemind]

Published September 3, 2008
Emerging market debt defaults worrying

(LONDON) Rising corporate debt delinquencies and the first sovereign credit default in two years are kindling investor concerns that more emerging market borrowers could fail to repay their debt.

As the global credit crunch trundles past its first anniversary, some firms and governments are faltering on rising refinancing costs and heightened investor risk aversion.

Seychelles failed to service a privately placed 55 million euro (S$115 million) note last month and now teeters on a default of its US$230 million global bond due next month.

The tiny island-nation's debt woes have emerged as sovereign default risk premiums for Argentina, Ecuador and Pakistan soar.

'With the deteriorating global growth environment, you have to believe some countries may get into trouble,' Angus Halkett, Deutsche Bank emerging markets strategist.

The level of distressed emerging sovereign debt - defined as bonds trading at spreads over US Treasuries of above 1,000 basis points - remains relatively low.

By mid-August, it amounted to US$3.3 billion or 2.1 per cent of outstanding sovereign bonds versus 1.6 per cent in June 2007 before the onset of the liquidity crunch.

Investors say sovereign debt default risks remain low. 'Seychelles' default doesn't signal the start of a wave of (sovereign) defaults. It's overindebted for what's essentially a collection of beaches and a tuna cannery,' said Stephen Rothwell, executive director at hedge fund Argo Capital.

But distressed debt has surged among emerging corporate issuers - up to US$23.8 billion or about 7 per cent of liquid bonds from just US$50 million a year ago.

As these figures exclude local-currency bonds, says ING global head of emerging markets strategy David Spegel, actual distressed debt levels could be higher.

'Falling company profits and higher debt servicing costs are increasing the default risk,' said New York-based Mr Spegel.

About 44 per cent of the distressed debt is financial sector-related and half from firms in the former Soviet Union.

These companies raised an 'unprecedented amount' of debt in recent years which they are now struggling to refinance because investors are scarcer, said Kieran Curtis, a fixed- income fund manager at Morely Fund Management.

Banks in Ukraine and Kazakhstan, heavily leveraged and foreign-investor dependent, face higher refinancing costs.

'Emerging sovereign debt gets allocations from pension funds that make that market more stable but the investor base for emerging corporate debt is more specialist and few are dedicated investors,' Mr Curtis said, adding that many funds had pared emerging corporate debt holdings in recent months.

An expected US$30 billion in new emerging bonds in the rest of the year could struggle to find buyers.

Even oil-exporting Russia - flush with domestic liquidity thanks to high commodity prices - is feeling credit pressures. Russian retail group Marta last month defaulted on its rouble bonds, prompting Fitch Ratings to warn of liquidity strains for its highly geared peers.

Default fears over Russian corporate debt are unlikely to spread to the sovereign issuer in spite of investor jitters over the country's row with the West over Georgia.

Russia defaulted on its local-currency debt 10 years ago but has never missed a payment on its foreign-currency debt. -- Reuters

[ishak]

Emerging Market Stocks Fall for Biggest Weekly Loss Since 2001
Sept. 5 2008, Bloomberg

Emerging market stocks fell for a sixth day, capping their largest weekly loss since 2001, as commodities dropped on global growth concerns and Morgan Stanley said profit estimates were overly optimistic for this year.

Petroleo Brasileiro SA, Brazil's state-controlled oil producer, slid to the lowest in 11 months. OAO Gazprom, Russia's largest natural-gas exporter, tumbled for a fourth day. China Mobile Ltd., the world's biggest phone company by market value, dropped 2.4 percent, helping to send Hong Kong's benchmark stock index below 20,000 for the first time since April 2007.

"Emerging markets are seen as a leveraged play on the global economy,'' Jing Ulrich, JPMorgan Chase & Co.'s chairwoman of China equities, said in an interview. "If the global economy slows, then that will have a profound effect on emerging markets. It proves there's been no decoupling.''

The MSCI Emerging Markets Index's five-day decline of 9.2 percent is the largest since Sept. 11, 2001. The index has declined 30 percent this year to the lowest since March 2007, trimming multiples to 11 times earnings from 19 in late October. It dropped 2.5 percent to 871.24 at 12:45 p.m. New York.

The U.S. economy is "stagnant,'' Europe is falling into a recession, and central banks won't have much room to cut borrowing costs amid elevated prices, the Conference Board said.

In emerging markets, earnings may rise an average 5 percent this year, driven by energy and telecommunications companies, compared with the consensus forecast of 13 percent, Morgan Stanley strategists including Jonathan Garner wrote in a note.

Morgan Stanley's profit growth forecast for next year is 7 percent compared with the 18 percent consensus estimate, they wrote.

"Valuations now suggest an earnings recession in emerging markets at least as bad as the 2001/02 cycle when emerging market earnings fell 18 percent peak to trough,'' they wrote.

Commodity Stocks Drop

Petrobras dropped for a sixth day, losing 2.2 percent to 30.75 reais. Crude oil fell more than $2 a barrel after a government report showed employers in the U.S. cut more jobs last month than economists forecast, a signal that demand may drop. Oil declined more than 8 percent this week, the most since July, as the dollar's gain curbed demand for commodities as a hedge.

Gazprom slid 3.7 percent to a 52-week low of $8.67.

China Mobile dropped 2.4 percent to HK$82.

Cia. Vale do Rio Doce, the world's largest iron-ore producer, slid for a sixth day, losing 1.1 percent to 35.13 reais.

The Standard & Poor's GSCI gauge of 24 commodity futures has fallen for six consecutive sessions and is down 27 percent from a record in July, signaling a bear market.

Worst Performers

China Eastern Airlines Corp., the country's third-largest carrier, and Nine Dragons Paper (Holdings) Ltd., a Chinese maker of containerboard used in packaging, are the index's worst performers in the last year, dropping about 80 percent.

Citic Resources Holdings Ltd., a Chinese metals producer turned oil supplier, has tumbled 63 percent in the last three months as global commodity prices retreat on concern rising inflation and slowing global growth is crimping raw material demand.

Emerging market stocks have fallen to "very compelling'' levels as earnings sources are more diverse and mining may be still at a midpoint of a super-cycle, the Morgan Stanley strategists wrote.

"Valuations reflect a worse outcome in earnings than we expect,'' the strategists wrote. "We think that risk-reward is very compelling at these levels.''

[winston]

BRICs, Pals Invite Wary Investors for a Swim: Michael R. Sesit

Sept. 12 (Bloomberg) -- Telling people to invest in emerging-market equities may sound like advising them to jump headfirst into a swimming pool mostly drained of water.

A dumb move, for sure. Still, it would behoove investors to wade in while preparing for the day the pool is refilled.

Receding inflation prospects, pro-growth fiscal policies, solid corporate earnings, evolving domestic demand, a still- intact economic-growth story, relatively low ``free floats'' and low valuations all suggest that the emerging-market equity story still has legs.

What's more, this asset class has grown too big to ignore. In 2007, emerging economies accounted for almost a third of global income and production, up from 20 percent in 1993, or about the same as developed Europe and a fifth bigger than the U.S., according to UBS AG. Brazil, Russia, India and China -- the so-called BRIC economies -- made up an eighth of global GDP.

Measured by purchasing power parity, emerging countries equal 47 percent of global output, according to the World Bank, while the four BRICs combined account for more than either the U.S. or Europe.

The developing world represents more than 60 percent of global growth, compared with less than half that in 1990, UBS said in a recent report.

Superior Returns

Faster growth than developed countries spells superior investment returns. During the 20 years through the end of August, the MSCI Emerging Markets Index had an average annual total return of 13 percent, measured in dollars. That compares with an 8.1 percent average annual total return in developed markets, as measured by the MSCI World Index.

Comparable numbers for the past 10 years are 18 percent for emerging-market equities and 5.8 percent for major stock markets.

The most recent results aren't as pretty. Emerging stock markets tumbled 31 percent in 2008 through Sept. 10, led by declines of 61 percent in China, 42 percent in Russia and 29 percent in India.

Slowing global growth, high inflation rates, central banks battling the price increases with tighter monetary policies -- which damps domestic growth -- are behind the market declines. So is the rising cost of food, meaning less spending on other items.

Developing-country stock exchanges are ``heavily weighted in commodity-related stocks, with energy and materials accounting for 21 percent and 9 percent, respectively, of emerging-market capitalization,'' said Montreal-based BCA Research Ltd. in a report last month. ``When these sectors fare poorly, performance of this asset class as a whole is dragged down.''

Geopolitical Risks

War, domestic-political tensions and territorial disputes involving Russia, India, Pakistan, Thailand, Malaysia, South Korea, Venezuela and Israel also play their part. Investors pulled $23.7 billion out of emerging-market equity funds in the past 13 weeks, says Brad Durham, managing director at EPFR Global in Cambridge, Massachusetts.

So much for the bad news. Weakening growth and declining energy-and-food prices should ease inflation pressures and permit emerging-market central banks to loosen policy. That should boost growth, which in any event will continue to surpass that of developed countries in years to come.

As of the end of July, earnings per share for the companies in MSCI's Emerging Market Index were up 23 percent from a year earlier, according to Merrill Lynch & Co. EPS growth in industry groups associated with domestic demand -- consumer, telecommunications, industrials and financial services -- rose 29 percent. Chinese retail-sales growth exceeded that of the nation's exports for the first time in June.

`Secular-Growth Story'

``Domestic demand is the secular-growth story in emerging markets,'' says Michael Hartnett, Merrill's head global emerging- market equity strategist in New York.

Meanwhile, many developing nations continue to be blessed with high levels of savings and current-account surpluses. Several are increasing government spending, especially in areas such as infrastructure.

Emerging-market countries also enjoy a liquidity advantage over their developed counterparts in the form of very large foreign-exchange reserves and sovereign wealth funds. This is money ``that can be used to boost domestic markets,'' Hartnett says. ``There's still a lot of firepower in the government sector in emerging markets.''

Emerging markets biggest allure may be their cheapness. The MSCI Emerging Market Index is selling at 11.12 times trailing earnings, down 41 percent from Nov. 30, 2007. At 14.61, the price-earnings ratio of China's CSI 300 Index is 73 percent off its October 2007 peak, while at 6.93, the Russian Trading System Index is 48 percent below where it stood last December.

Free Floats

Developing-country stock markets are also small compared with their respective economies. China's so-called free float, or those shares that international investors can purchase, is $396 billion, according to MSCI. That equals 15 percent of the country's gross domestic product. The comparable figures for Russia and India are 22 percent and 21 percent, respectively.

By contrast, the U.S. market's free float equals 87 percent of America's GDP, while the U.K. stock market's is 96 percent of Britain's economy and France's is 51 percent of its GDP.

Given the risks, investors shouldn't bet the farm on emerging markets. But they shouldn't ignore them, either. The best strategy is to ease into these markets slowly over a protracted period, using some form of dollar-cost averaging.

Even so, if Russia invades Ukraine or Israel bombs Iran, all bets are off.

[kennynah]

moral of the story is...

when suddenly everyone, especially news stations, begin yakking away about something..that's passe and that trend is potentially coming to an end..

BRIC, was on everyone's lips beginning of this year thru to apr/may.... then... kaput...