Tag Archives: emerging
The Global Guru: Why Emerging Markets Will Soar in Q4
By Eagle Financial Publications , September 19, 2013 EMF) between 1990 and 1993. And much like biotechnology, emerging markets are overdue for a boom. That boom may have already started, as the MSCI Emerging Markets Index bottomed on Aug. 27 and has rallied 11.43% since. And here’s why I think emerging markets will continue to soar in Q4… 1. Because They (Almost) Always Do As a former emerging markets mutual fund manager, I can reveal that one of the “dirty little secrets” of emerging markets managers is that we expected to make the most money for our clients during Q4. Sure, there are exceptions, like the period after the collapse of Lehman Brothers in 2008, when investors abandoned all risky assets and everyone headed for the exits at once. But during normal times — and yes, today counts as normal — the story goes something like this: Big, institutional money, as opposed to more nimble hedge funds, starts thinking ahead to the next year. Strategists write reports, committees meet and the powers that be nod their heads in agreement. And institutional managers start implementing their new asset allocation decisions before the start of the year. After all, they want to have them in place by Jan. 1. That means shifting money out of, say, U.S. markets into emerging markets, or taking money out of India to put it to work in Thailand. This process always tended to move markets in December. But since they want to get a jump on the competition — after all, why wait to buy at a higher price — they start a bit earlier, say November. And all of that activity and buying tends to move the prices of markets up. 2. Because You Hate Them Emerging markets were pegged by most institutional investors as the most popular asset class at the start of 2013. I made the same error. That positive sentiment stands in stark contrast to a recent survey of 900 Bloomberg subscribers, according to which the formerly high-flying BRICs (Brazil, Russia, India and China) were expected to do the worst among any markets on Earth. India fared the poorest, followed by Brazil, Russia and China. A full 36% of respondents said the BRIC era is over. Brazil has fallen from its commodities boom-driven perch. Russia has resumed its traditional position as the market that investors love to hate and as the Putin mafia’s playground. India magically transformed from a country that churned out engineers that put the United States to shame into a dysfunctional mess. The only relatively good news is coming from China. And given that country’s Soviet-like penchant for making up numbers, even that is suspect. Only 14% of survey respondents said China will be one of the two best places to invest in the next year and 23% called it one or two of the worst. If you are a contrarian investor, there is hardly a better time to buy emerging markets. 3. Because Markets Always Revert To The Mean The underperformance of emerging markets compared with, say, the United States in 2013 almost has been unprecedented. As of today, the U.S. market has outperformed emerging markets by over 26.7% — just this year. And that’s after the recent double-digit rally in emerging markets. But as the economist Herb Stein observed, things will keep going the way they do until one day they don’t. Put another way, emerging markets’ underperformance, compared with the United States, will last — until it inevitably narrows. And why that gap won’t narrow is because of a collapse in the U.S. stock markets, supported, as it is, by an improving economy. After all, emerging markets are as cheap as they’ve ever been and are trading at a price-to-earnings (P/E) ratio of roughly 10 versus 15 for the U.S. market. My prediction? At some point, emerging markets will have a sustained — and lasting — rally reminiscent of the monster rally in the early 1990s. That rally may have already started. Disclosure: I hold the iShares MSCI Emerging Markets (EEM) both personally and on behalf of my clients at my firm Global Guru Capital . Read more: http://www.nasdaq.co…5#ixzz2fQmg992Q Continue reading
Look To The Fundamentals In Emerging Markets
http://www.ft.com/cms/s/0/70d9b14c-14af-11e3-b3db-00144feabdc0.html#ixzz2fQfIJxI8 By Gary Mead Being a generalist in emerging markets is to be a mindless herd member – and the herd has no mind, but is just pushed by snapping dogs. So ponder the particularities of a place, an industry, a sector: there will be fantastic opportunities once the herd stays put. What lies behind the recent rout? Quantitative easing (QE) is the monetary policy drug of choice right now, and the threat of its withdrawal has already induced an ugly international bout of cold turkey in world markets. Princeton University’s Jean-Pierre Landau, a former Bank of France deputy governor, put it more diplomatically at last month’s Jackson Hole annual summit for central bankers. Accommodative monetary policy has averted one global financial crisis, but inadvertently produced another – capital markets’ anxiety over how soon and how fast QE might be unwound. Mr Landau was pessimistic about the level of central bank co-ordination necessary to get off this drug without pain: “The most likely scenario is that of progressive fragmentation of the international financial system.” Since December 2008 the US Federal Reserve has poured easy money into the US economy and, by extension, the global system, obedient to one of its mandates, getting America back to work. It has done this partly by keeping a tight lid on US overnight interbank lending rates, maintaining them in a range of 0-0.25 per cent. On top of that it has bought almost $2tn of longer-term US Treasury bonds. This vast QE, aided and abetted by similar (if smaller) schemes in Japan and the UK, has had the inevitable consequence of dragging thousands of billions of dollars into emerging markets, in the desperate quest for yield. Those days are not quite over – but the smartest money is now trying to figure out when US interest rates will start to rise and dispel the Fed’s opiate-induced calm. For some, this is creating rising hysteria; others are exhorting us to calm down because this is just a return to the status quo ante bellum. The canniest, of course, are on the watch for fresh opportunities, and trying to ignore scaremongering headlines in normally reputable media. What are the hard facts? On May 22 the Fed’s chairman, Ben Bernanke, said he might start slowing bond purchases – so-called “tapering” – if the US economy continues to improve. Almost immediately the MSCI Asia-Pacific Excluding Japan Index slipped 14 per cent. Around $44bn has been withdrawn from emerging-market stock and bond funds globally since the end of May, according to the data provider EPFR Global. This retreat from emerging markets now appears to be a fixed trend. According to the authoritative latest (June 2013) Capital Flows to Emerging Market Economies report produced by Felix Huefner and his colleagues at the Institute of International Finance, private capital inflows to emerging markets will total $1.145tn in 2013, $36bn less than in 2012. Next year these flows will fall even further, to $1.112tn, the lowest level since 2009. But that is still a wall of money and it might be seen as a return to normality rather than outright collapse. As the west went into deep recession, cut rates and printed money, investors fled, looking for better returns wherever they could, paying scant attention to the fundamentals of the economies of several big emerging markets. Now that the west is in better health, those often weak fundamentals have reminded many investors why they had not previously entered them. India and Indonesia, the two Asian nations with the region’s biggest external funding requirements for their current-account deficits, have already stumbled. The Indian rupee fell to an all-time low in July after the country’s current account deficit widened to an unprecedented $87.8bn in the fiscal year that ended in March. Also in July, Indonesia’s current-account deficit climbed to a record, economic growth slowed and inflation geared up. Overall, more than $1tn has been wiped from equities in emerging markets in the last few weeks. The hope that a slower-growing developed world was smoothly converging with a faster-growing emerging world is, if not over, then certainly delayed. For anyone exposed to emerging markets as a whole, standing in the way of the crowd heading for the exit makes little sense. Too many countries in the emerging world face serious structural problems that were, perhaps justifiably, ignored when the developed world’s economies were being put through the wringer. It is difficult to ignore incipient revolution in Egypt, appalling civil war in Syria, bitter political divisions in Turkey and rampant corruption in India when the west appears to be on the mend. But the key to all this is an individual country’s balance of payments. Trading on the basis of “is this a risk-on or a risk-off day?” is unwise. Trading on the basis of the underlying strengths or weaknesses of a nation’s economy might be duller but is more rational. It is easy to get distracted by newsflow but look out for economic fundamentals. Continue reading
The Next Big Thing? Investors Switch From Emerging To Frontier Markets
27 Aug 2013 | 11:08 Anna Fedorova The poor performance of emerging market equities year-to-date has caused investors to turn to frontier markets in search of better returns. Assets under management in frontier market funds have more than doubled to $3.1bn since the start of the year, according to BofA Merrill Lynch, while EM funds have suffered outflows of $2.1bn. Frontier markets are enjoying a strong year, with MSCI Frontier Markets outperforming both developed and emerging market equities with a return of 14.7% for the year to 20 August, versus 12.1% for the MSCI World and 11.7% for MSCI EM. Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said underperformance from major Asian markets in particular has led investors to look further afield. “With China having disappointed since the 2008 crisis, investors are now looking for the next big thing.” Charles Hepworth, investment director in charge of GAM’s discretionary fund management, has recently sold a global emerging markets fund and replaced it with Templeton Frontier Markets. “Frontier markets are a key area in the emerging market universe for us at the moment and we are shunning more generalist EM funds,” he said. Choosing a frontier markets fund can be tricky, as there are few on offer and many have recently soft-closed due to liquidity constraints. The Templeton fund soft-closed in May at $2bn and Goldman Sachs Asset Management soft-closed its Next 11 fund, which offers exposure to similar countries, in June at $1.7bn. Mona Shah, co-manager of multi-asset portfolios at Rathbones, tipped Renaissance Asset Management’s Eastern European fund as an option for investors wanting to gain access to these markets. Shah added that if the group was to overweight emerging markets, this would be an interesting option due to its exposure to high beta markets, particularly Russia. Meanwhile, Ben Seager-Scott, senior research analyst at Bestinvest, highlighted the BlackRock Frontiers investment trust, which has returned 48.7% over the year to 9 August, according to Morningstar. “The investment trust format means you do not have to worry so much about liquidity because it has a limited life, and it has a sizeable team covering the region, which is very important,” he said. Baring Asset Management is the latest provider to launch a Frontier Markets fund, and Seager-Scott expects many competitors to follow suit over the next ten years. The top performing global frontier markets equity fundsover one year to 19 August are the Schroder ISF Frontier Markets Equity and Charlemagne Magna New Frontiers funds, which have returned 38.9% and 24.3% respectively. Shah said frontier markets are particularly interesting because they have remained uncorrelated to both developed and emerging markets equities, with a correlation of 0.6% for the respective MSCI indices. Before the 2008 crisis, frontier markets followed the performance of developed and emerging equities but, after the crash, money failed to flow back into these markets. Seager-Scott said: “I particularly like frontier markets because they are not as mainstream as emerging markets and therefore not as sensitive to hot money flows and investorsentiment. When investors go into risk-off mode, they pull money out of EM, but that does not happen in frontier.” However, he cautioned frontier markets should be considered a long-term investment owing to their volatile nature. Continue reading
