Stay the course in emerging markets

[Cobra]

Stay the course in emerging markets
Despite corrections, they are a long-term hold as they are growing at double the rate of developed countries, Templeton's Mark Mobius tells GENEVIEVE CUA

EMERGING markets have delivered four straight years of positive return, a historical first, but to investors who fret about a possible correction, veteran fund manager Mark Mobius has this message: Stay the course.

"The key word is growth. Emerging markets are growing at double the rate of developed countries. As long as that holds true, it will be worth your while. Investors must be exposed if they want to capture that growth.'
- Mark Mobius, executive chairman of Templeton Asset Management
The region's equity prices are at the moment driven by the confluence of higher risk appetite among investors, global liquidity and fairly low inflation. Still, Mr Mobius, executive chairman of Templeton Asset Management, says valuations are reasonable. 'In fact, emerging market average valuations are below that of the US so we're still able to find good investment bargains. Now, there are certain pockets like China where things look like they are out of hand. But if you assume people look 10 to 15 years ahead and the economy grows at a strong pace, then companies growing at 15, 20 or 30 per cent a year can justify a high price earnings (PE) ratio. But on balance, it's a pretty dangerous situation in (Chinese) A shares.'

He adds: 'We're not predicting an immediate bear market, but there will be corrections along the way. It's natural for markets to over or under-shoot but from a long range perspective, we're quite optimistic.' Emerging markets, he says, are a long-term hold. 'It's very simple. The key word is growth. Emerging markets are growing at double the rate of developed countries. As long as that holds true, it will be worth your while. Investors must be exposed if they want to capture that growth.' For his personal portfolio, Mr Mobius only invests in his own fund in addition to some real estate.

Shanghai's Composite Index which covers A and B shares has reached new highs in recent days. China A-share valuations exceed 40 times earnings - said to be the most expensive relative to major stock markets - and has led to worries about a possible bubble.

Mr Mobius says a bear market is probably on the cards at some point for emerging markets. The problem is predicting its timing, and hence, diversification is key.

'Everyone knows there will be a bear market but I can't tell you when. That's a crucial question, because from the time you predict one to the time it happens, it could be years. If you're not invested in that time, you've lost. Some of my colleagues in the industry said they would close their funds three years ago. Imagine what they would have missed.

'We concluded that it doesn't make sense to say, we'll stop investing. If you're in a global fund, there is always some company that is relatively inexpensive.

'The key word is relative. The water level is rising and you don't know if that water will come down or keep going. We do know inflation is with us throughout our lives and currencies do get devalued.

'The other thing is, if you look at any market and look at bull and bear periods, you'll find that the bull market lasts longer than the bear market and they go up more than bear markets go down. The best thing is to be cautious, invest in companies that will survive a bear market. And be ready with some reserves so that if the market does go down, you're able to buy more.'

Templeton's team scrutinises the signposts of good value, which include a strong cash flow, a high return on invested capital, low price earnings and low price to book value multiples. The group started its first emerging market fund in 1987 with US$100 million in capital and less than a handful of professionals. Today, Templeton manages some US$35 billion with 59 professionals in 13 countries. 'We're in a period of very, very rapid growth. But our philosophy and method of investing have not changed. We still value investors. We try to find the cheapest stock, using a systematic approach,' he says.

In Singapore, the fund that is open to retail investors is the Luxembourg-domiciled Templeton Emerging Markets Fund. It has, however, under-performed the MSCI Emerging Markets Index by a fairly wide margin. Since inception in 1991, the fund has delivered 189 per cent in cumulative return up to April 30, compared to the index's 441 per cent. Over one year, the fund returned 9.6 per cent (13.58 per cent for index); and 132 per cent over five years (164 per cent for index).

BCA Research, in its May 17 emerging markets strategy report, says asset allocators should maintain an overweight position in the asset class. Investors who are underweight should use dips to increase their exposure. It says historically, economic expansion and bull markets are ended by an inflation outbreak or debt deflation. The latter refers to a combination of falling prices, increasing real debt burden and stagnating or contracting business activity. This happened during the Asian financial crisis.

'The odds of an inflation outbreak or debt deflation are presently low. Consequently, barring short-term pullbacks, the uptrend in global share prices is likely to persist for the time being,' BCA Research said.

Clients, it said, have asked about the expected fallout from a vicious sell-off in China domestic A shares. 'There is no question that the recent rise in Chinese equity prices has taken on all the major characteristics of a powerful mania. Nevertheless, timing the end of any mania is very difficult . . . Our sense is that the Chinese equity bubble is likely to get bigger than it is today before a final top is reached.' It adds that there is now fertile ground for a financial mania in stocks: good economic growth, profit growth, low inflation, a strong currency and very low interest rates.

'Our take is that although the Chinese equity bubble is being rapidly inflated, it has not yet reached a dangerous level by historical precedents.' The Nasdaq topped out at a PE of 160, and the red chip mania of 1997 drove PEs to well over 100.

Mr Mobius says investors should take some profits off the table even as they stay invested.

'You can't expect the same return year after year . . . Markets have been up a lot so it's not a bad idea to take some profits along the way. We're not saying that markets will go down, but you can see that it's quite unusual to have 30 to 40 per cent in returns year after year.

'Companies don't grow consistently, there will be down years. So stay in emerging markets, but dollar cost average and set your targets. When you get above that, take it off the table.'


Published May 23, 2007

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[tags] emerging market, stay the course

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Traders in São Paulo. Trading at Brazil's stock exchange was halted twice on Monday because of steep sell-offs. (Paulo Fridman/Bloomberg News)

via : http://www.iht.com/articles/2008/10/07/business/07emerge.php

Emerging markets find they aren't insulated from the tumult
By Alexei Barrionuevo, Andrew E. Kramer and Julie Werdigier
Published: October 7, 2008

  RIO DE JANEIRO: Emerging markets took one of their biggest collective tumbles in a decade Monday as stock markets from Mexico to Indonesia to Russia were gripped by fears of a collapse of Europe's banking system and concern that a global recession could drag down the price of commodities, forcing a steep slowdown in emerging-market growth.

Many of the world's fastest-growing economies thought they had insulated themselves from problems in the developed world. But economists said that simultaneous turmoil in Europe and the United States was too much to bear. "The potential of a global recession is awakening emerging markets that they will be hit stronger than we thought before," said Alfredo Coutiño, a senior economist at Moody's, the credit rating agency.

At the beginning of the global trading day, Asian markets were hit by fears that weakening economies in the United States and Europe would increase the chances of a downturn in Asian exports. The Standard & Poor's/Australian Stock Exchange 200 index in Sydney declined 3.3 percent, the Nikkei 225 index dropped 4 percent in Tokyo, and the Hang Seng in Hong Kong fell 5 percent.

But Indonesian markets fell 10 percent — as did some of the largest European markets later. Unlike many emerging markets, Indonesia has been running a trade deficit, which means that it needs a constant flow of foreign capital. But capital has been seeking safe havens, and the emerging markets with large current-account deficits are being penalized.

Nicholas Bibby, an economist in the Singapore office of Barclays Capital, said that falling share prices across the region showed that many investors were still worried that banking difficulties might spread even after Congress passed a $700 billion economic bailout plan in Washington.

"It's a fear of contagion," Bibby said, while adding that Asian banks were better positioned than most to withstand the current problems because the region's high savings rates tends to mean that Asian banks are net lenders in international money markets.

Similarly, many economists expect that the regulatory reforms Latin America took to shore up its banking sector in the wake of previous crises will make them more resistant to failure than their American or European banks. But that relative health is inspiring little faith in the markets.

Brazil's stock market, the Ibovespa, closed down 5.4 percent, after trading was suspended twice, at one point when the market plunged 15 percent. Argentina's Bolsa de Buenos Aires fell 6 percent. Even Chile, the region's most stable economy, had one of its largest one-day drops in years. The country's IPSA exchange dropped 6.02 percent; its IGPA exchange fell 4.89 percent.

For Latin America, nightmarish memories of previous financial crises are still fresh. Mexico struggled at the end of 1994 and was saved from default only by a $50 billion bailout by the United States in concert with international organizations. After the Southeast Asian crisis, Brazil watched its currency, the real, tumble 43 percent in early 1999 after the government abandoned its policy of defending it.

This time, the region was thought to be more resilient. This decade, Brazil, Mexico and Chile, in particular, have saved wisely during a broad-based commodity boom. They have reformed their financial institutions with stronger regulations and, in the case of Brazil especially, diversified their trade to be less reliant on the United States economy and more on Asia's.

"Latin America is in a much better macroeconomic position now," Coutiño said. "But in the past few weeks the movie has changed, and now Europe is involved. Two of the three main global locomotives for growth are now suffering. If we face a global recession nobody can escape."

To varying degrees, Latin American countries have said they will tap reserves and stabilization funds to try to ensure that the higher cost of borrowing does not affect exporters. The governments of Brazil and Chile have said in recent days that they will free funds for key industries this year.

Other countries — such as Venezuela, Ecuador and Argentina — which saved less, will not have as much flexibility. In Argentina, the global credit tightening could make it more difficult for the country to renegotiate billions of dollars in outstanding debt and stave off a fiscal crisis next year, Coutiño said. But because it has been shunned by international investors, capital flight is less of a concern.

"Capital is not leaving Argentina because it never entered Argentina," said Dante Sica, an economist at Abeceb, an economic consulting firm in Buenos Aires.

Russia led the global sell-off Monday, its stock market falling 19.1 percent, its worst day since the end of the Soviet Union and the return of capitalism. Russia's RTS index dropped about a tenth of a percent farther than during the previous worst day — Oct. 28, 1997, during the emerging-market financial crisis of the late 1990s.

Three halts in trading through the day failed to slow the drop. The other main stock exchange, the Micex, was down 18.6 percent. And some big companies fared even worse.

Gazprom, Russia's largest company, fell 24.4 percent, and Norilsk Nickel, a blue-chip mining enterprise, lost 37.7 percent. Brokers once giddy about the rapid rise of the oil-fueled market said they expect worse to come.

"Nobody has to own the market," Kingsmill Bond, the chief strategist at Troika Dialog brokerage, said of Russia stocks. And nobody, apparently, wants to, as investors closed positions to move to treasury securities.

Falling commodity prices is one reason: as the threat of global recession looms, oil and other resources that fueled Russia's boom are retreating. The Russian market was also weakened by investors divesting in the wake of the war in Georgia, which raised the specter of a return to cold war hostilities with the West. As stocks fell, other investors were forced to sell on margin calls, in a spiral that revealed the Russian stock market was more leveraged than most analysts had believed. A Kremlin bailout plan, meanwhile, has not had much effect.

On Monday alone, the stock market drop represented a paper loss of $102 billion for Russian companies.

Gazprom executives once boasted, Khrushchev-like, that their company would bury its biggest competitor, Exxon Mobil, on the strength of their seemingly limitless reserves of natural gas in the Siberian wilderness. But Gazprom has fallen 66 percent since its peak in May; the company's market capitalization was $123 billion Monday.

Exxon Mobil, which is also vulnerable to oil price declines, has fallen less, 21.1 percent since its May peak.

In another example of Russia's woes, the price of Norilsk Nickel collapsed Monday after a big shareholder, the metals tycoon Oleg Deripaska, the nation's richest man, was forced to hand over his shares in the Canadian auto parts maker Magna in a margin call by creditors.

That raised the question of whether his recently purchased Norilsk shares could also soon be seized by the consortium of Western banks that financed the deal. A spokesman for Deripaska's conglomerate, Basic Element, said the company faced no liquidity crisis. Norilsk shares are down 78.2 percent from their peak this year.

Such losses in Russia's mighty mining, oil and gas companies have now raised the specter of defaults by the wealthy but secretive coterie of Russian businessmen known as the oligarchs. Peering into their finances has always been a guessing game.

The Russian stock market is now about where it was on Aug. 17, when authorities halted trading for two days and announced a more than $150 billion stimulus package of loans to banks and tax cuts, which the market has largely shrugged off. On Monday, Vladimir Putin, the prime minister, said he would set up a committee to study new responses to the crisis. A deputy minister of economy said Russia plans additional, unspecified stimulus measures.

Iceland's banks were celebrated not long ago for transforming an island of fishing villages into an economic dynamo by lending money to the world. But now the global credit squeeze is threatening to swamp those overleveraged banks, and the country with it.

The position of Iceland's banks had deteriorated greatly over the last 24 hours, Prime Minister Geir Haarde said in a television address from Reykjavik on Monday. So much so that the country passed legislation Monday allowing the government to take wide-ranging powers over its banks.

Haarde said all bank deposits would be guaranteed by the country — following Ireland, France, Germany, Austria, the Netherlands and others.

The prime minister had already asked the country's pension funds and its two biggest banks, Kaupthing Bank and Landsbanki Islands, to sell some foreign assets and repatriate the proceeds so the country would get an infusion of capital. With the new legislation, the government is now able to decide whether to merge pension funds and banks or declare some bankrupt.

The steps were also desperately needed to stop the tailspin of the country's currency, which only destabilized the economy further. The Icelandic krona fell 43 percent against the euro this year mainly because investors feared the government will be forced to step in and support the banks — something it could not afford to do on its own.

Assets held by the country's main banks are nine times the size of the entire economy.

Iceland's problems are deeply rooted in the history of its financial services industry, which grew out of proportion to the country's 319,355 population ever since the sector was privatized and deregulated about eight years ago. The banks tapped capital markets to finance their rapid expansion into Britain and as far as China and set off an investment boom that created a whole league of new billionaires.

But it also left the country with a large current-account deficit and its economy and financial market vulnerable to a credit markets squeeze. Iceland had its first warning in April when the krona fell 26 percent in four months as traders started to doubt the ability of the government to sustain the stability of its inflated banking sector.

The fear was that Iceland's banks could default on their foreign loans. A month later, the central banks of Sweden, Denmark and Norway came to its rescue and offered an emergency loan. Back then, it helped to reinstate some trust in the country's financial system and economy but other Europeans have their own problems this time.

Two weeks ago, President Felipe Calderón of Mexico, during a visit to the New York Times offices in Manhattan, noted that in previous decades when the United States would catch a cold Latin America would catch pneumonia. Nowadays, he said that day, when America catches pneumonia, Latin America catches only a cold.

That might have been wishful thinking. With some 85 percent of Mexican exports going to the United States, and half of its foreign investment flowing from there, Mexico is likely to be the Latin American country most affected by the financial woes on Wall Street when all is said and done. Remittances, the second-biggest source of foreign exchange for Mexico, are flat and falling, said Leonardo Martinez-Diaz, a Mexico expert and political fellow at the Brookings Institute. And Mexico's peso fell 6.4 percent in September, its worst month since August of 1998.

Mexico's banking sector could present a bigger challenge. Some 82 percent of Mexican banking assets are foreign-owned, of which about one-third are in American hands, about one-third owned by Spanish banks and the rest owned by other European banks, Martinez-Diaz said.

"The crisis could be transmitted to Mexico through those banking connections," he said. "If there is a crisis in the Spanish market they may retrench and stop lending to Mexico for some time."

As companies postpone big investments until at least next year, regular Mexicans will most likely tighten their belts, stay home more and perhaps put off large expenditures. "The whole economy will go into a wait-and-see mode, to see which way the U.S. economy goes," he said.

With Monday's drop, Brazil's stock markets has plunged 45 percent this year. But the country continues to grow at more than 5 percent a year.

It has done more than any country in Latin America to set aside money during the commodity boom. The last two governments have accumulated more than $200 billion in foreign reserves and billions more in stabilization funds. Brazil has diversified its economy and lowered its exposure to the United States, which accounts for only 15 percent of Brazil's exports now, down from about 50 percent at the beginning of the decade.

But while household spending has driven much of the recent growth in the economy, Brazil remains highly sensitive to commodity prices. On Monday, government officials sought to play down the effect of the market's fall and broad concerns about emerging markets.

One silver lining in the sell-off may be the effect the crisis is having on the Brazilian real, which lost 17 percent of its value in September, its worst performance since September of 2002. While that will sap buying power for consumers, it provides welcome relief for industrialists in the country that were warning that Brazil's exports were becoming too expensive.

Keith Bradsher contributed reporting from Hong Kong. Vinod Sreeharsha contributed reporting from Buenos Aires.

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when all the major economy collapse.

would the emerging market be able to sustain the growth?

probably not. so, what will we be seeing?

slower growth. what rate? from the highs of over 10% to a slower more sustained 5%? (or even 1-3%)
is that a bad idea?

true, nobody will escape this current crisis. but question is how badly will they be hurt, and then how fast will they recover.... as compared to the current US, UK, EURO market etc.

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the "emerging market" phrase keeps popping up in conversation with those finance people i speak to.

[Vorsprung durch Technik]

emerging markets? finance people knows theirs are not!

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[youtube]KQQQI6l-iTw[/youtube]
http://www.youtube.com/watch?v=KQQQI6l-iTw

Analysis and Discussion with Uri Landesman of ING Investment Management (Taking Stock)

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http://en.wikipedia.org/wiki/BRIC

BRIC. Brazil, Russia, India, China.

would they be able to consume as much as 1 x USA? (population of around 0.3 billion, vs. 1.6 billion)

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1.India, 2.Brazil, 3. Russia, 4. China

Indian stocks best performers across the world in 2009 so far
28 Jun 2009, 2258 hrs

Indian stocks have emerged as the best performers among those in the emerging and the developed markets across the globe so far this
year, giving investors the highest return of nearly 60 per cent.

According to an analysis of MSCI Barra indices, a measure of returns from various stock markets across the world for foreign investors, Indian stocks have outperformed their global peers, including in the US, the UK and China in 2009 so far.

Indian stocks have provided a return of 59.30 per cent year-to-date, against 34.37 per cent gains provided by MSCI Barra's emerging market index, covering all developing nations.

Indian stocks have even outperformed all the developed world markets covered by MSCI Barra, as the markets in the US and the UK gave returns of just 2.33 per cent and 10.17 per cent, respectively, so far this year.

Among the emerging BRIC (Brazil, Russia, India and China) nations, the Brazilian market was the closest competitor with gains of 56.89 per cent till June 26 this year. The Chinese and the Russian markets have given returns of 36.77 per cent and 41.61 per cent, respectively, in the year so far.

The 30-share benchmark index of Indian stocks, Sensex, gained over 5,000 points in the year so far to settle at 14,764.64 points on June 26 compared to 9,600 levels on December 31, 2008.

via : http://www.singsupplies.com/showthread.php?t=31430

[tags] BRIC, B.R.I.C


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

I guess it all depends on the dates that you use to make calculations.

These are the figures that i got.  It shows the Chinese markets just a percent below the India market.  Bombay Stock Exchange capitalization is $1.7 Trillion compared to $3.7 Trillion for the Shanghai market.  Also do not forget that Hong Kong Stock market (part of China) alone has a market cap of $2.7 Trillion.  It would take a lot more good news or stimulus to push up a larger market.

Finally whoever coined BRIC fail to realize how different these economies are.  They should not belong in the same basket.  Russia and Brasil are huge resource exporters and for Russia it is mainly oil and gas.  China is a manufacturing power house.  India's strength is in subcontracted IT work.



In all, the top 10 stock markets of are as follows:

    * Country       2009 Growth       Decline from 52-Week High
    * Peru       72.92%           -31.94%
    * Russia       53.33%            -61.22%
    * India       48.25%            -18.26%
    * China       47.01%            -26.30%
    * Taiwan       44.96%            -28.51%
    * Ukraine       44.30%            -55.38%
    * Argentina       43.24%            -31.47%
    * Indonesia       39.15%            -25.05%
    * Brazil       37.32%            -30.18%

http://www.economywatch.com/stock-markets-in-world/world-stock-markets-best-performing-markets-2009.html

I just did a recent round up of the various markets as of June 31, 2009 compared with Dec 31 2008 (end of last year).

Shanghai (2008/2009)         1820/3008    64% increase
Bombay Stock Exchange       9647/14645  51% increase


Incidentally your report was wrong:

Shanghai Index at June 26 2009 was 2928 and it was 1820 Dec 31 2008 giving a return of 61%.

Bombay Index at June 26 2009 was 14764 and it was 9647 Dec 31 2008 giving a return of 53%

Where did you get the report from?  Seems to be a poorly written report that is not based on the facts.  I cannot believe that they can make such a mistake.

I got my info from:

http://finance.yahoo.com/intlindices?e=asia

Very easy, just look for historical information for Dec 31 2008 and June 26 (date mentioned in that report of yours) and calculate the percentage increase.

As lodoftherings said - interesting news.  Perhaps he caught on to the error in the news reporting.

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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.”

To contact the reporters on this story: Adria Cimino in Paris at acimino1@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.
Last Updated: July 13, 2009 02:05 EDT

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7qU7lfSEq7I

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De-coupling in Emerging Markets – Are we there yet?


Every day seems to bring yet an other article about Emerging Markets. Either they are the saviors of the current economic order, or they are just an other bubble that is about to burst. They are a threat to the World, as we know it, such as when Dubai Ports tries to buy out P&O’s operations in the US, or they are part of the solution to the world’s ills, such as the Russians bid for Opel.

According to Bloomberg, the EMBI Index, a measure of the return on Emerging Market bonds, is at an all time high, whilst the yields on both T-Bills and Gilts are backing up, as questions are being asked about the Developed World’s ability to continue funding their massive budget deficits.

It was not always thus; previously, when the US sneezed, Europe and Canada got a cold, and the Emerging World got some highly virulent flu. What has changed? Have we really decoupled?

The problem with the decoupling theory, as with all attempts to reduce the world to simple sound-bites, is that it over simplifies, and thus obscures, the point. Two trends have been at play, and both have been overlooked in the period running up to the current crisis.

Emerging Markets have been increasingly well managed for quite some time, coinciding with a period when the Developed Markets have been increasingly badly managed. Emerging Markets have tended to learn from their own and other’s mistakes, whilst Developed Markets have tended to ignore them.

We all recall the Asian crisis, yet most people have already forgotten that China refrained from devaluing its currency, which would have wreaked farther havoc to the Global system. Would France or Italy have acted so strongly under the same circumstances? Today, we know that bank lending in China is showing massive year over year growth, as they try to stimulate to economy, but most forget that they were aggressively restricting credit in 2007 and 2008, as they tried to cool down the economy.

Few people realize the importance of the election of Luiz Inacio da Silva to the Presidency of Brazil in 2002. Prior to his elevation, he was viewed as barely better than a bomb-throwing communist who would renege on the country’s debts, attack businesses, and bring back hyper-inflation. Instead, in a “Nixon-goes-to-China” type conversion, he not only upheld all the Government contracts, but also enabled the enforcement of many others, such as foreclosure of mortgages. The results speak for themselves.

As the Reis, Brazil’s currency, revalued upwards, the Central Bank ignored the long-standing custom of issuing external debt in US Dollars whilst the “window” remained open. Instead, they issued what many would consider expensive internal, and even some external, debt in Reais. When the “window” was slammed shut, following the demise of Lehman Bros. the Reis, along with most other currencies, collapsed against the “greenback”. Had they not been so conservative with their debt management, Brazil would have faced yet an other currency melt down, accompanied by accelerating inflation, and stifling interest rates. Instead, as the panic has subsided, the currency has again broken below R$2/US$, interest rates are at record lows, and economic growth is already reaccelerating.

Brazil, India, and China were all raising rates in 2007 as they attempted to reduce what they saw as asset bubbles. This is in stark contrast to the Developed Nations, who at best ignored the situation, and at worst encouraged it as some misguided show of “strength” in their economies. “Irrational Exuberance” anyone?

Mexico, following the ’94 devaluation and subsequent bank bail out, has slowly been getting its house in order. One of the key elements put in place by former President Zedillo and continued under Vincente Fox, was the funding to the low-income housing agencies, such as FOVI and INFONAVIT. Funded out of payroll taxes, these agencies, whose job is to provide mortgages for affordable housing, had huge passed due loan problems and stop-go policies, as their presidents were changed at the end of every sexennio (six year presidential term).

Zedillo started to run them like real businesses, appointing presidents whose terms would extend beyond his Presidential term, whilst ensuring that they actually demanded repayment of the loans. The subsequent reductions in passed dues meant that these institutions accelerated lending, and started to make a dent in Mexico’s massive housing deficit.

There are even pockets of hope in Africa. Although places like Zimbabwe and Congo get most of the attention, Zambia and even Nigeria are trying to put in place policies that ensure economic sustainability. Zambian agribusiness is growing rapidly, partly through the efforts of displaced Zimbabwean farmers, and is earning the country vital foreign exchange. So far, instead of killing the “Golden Goose” through excessive regulation and graft, the authorities are encouraging the expansion and the rural jobs that it creates. It could very easily develop into a new “African Bread Basket”.

In Nigeria, MTN has been hugely successful at building a cell phone business. Not only are they the market leader, they have managed to repatriate significant profits. Talk to any official from President Yar’Adua’s government and you come away with the feeling that something really is happening. You even pay for you visa via paypal!

One thing we are witnessing is how little the Emerging World is dependent on the US consumer. Don’t get me wrong, the US consumer is important, and the inevitable, but necessary, return to a positive savings ratio in the US is having an effect, but it is not proving as nearly destructive as many feared.

Domestic demand in countries such as India and Brazil is much more robust than many had given them credit for. With Exports to GDP in the 15-20% range, they have never been as export dependent as many people have casually assumed. China has seen exports to the rest of Asia hold up remarkably well, suggesting that much of the intra-regional trade is not in fact merely a pre-cursor to exports to the US, but genuine domestic demand. Apple Computer’s recent quarter seems to confirm this.

The following maps of global cellular subscribers in 1990 and 2002 may give some insight into what is really going on. The maps, produced by Worldmapper, adjust the countries’ surface area by the number of subscribers. What they show is the massive increases in cellular subscribers in the Emerging World. Remember that for most of these new subscribers, their cell phones are their only phones, and thus the productivity gains are much larger than in countries with a legacy landline structure. The change in relative size, between North and South America, in the two maps speaks volumes.

Cellular Subscribers 2002




Cellular Subscribers 1990




A story I have been told, which I fully admit might just be a story, is of fishing villages in the Indian sub-continent. When they have a catch, they can return to their home village, and sell their goods there, or go to a neighboring village to sell, but not both. Obviously, if all the fishermen from one village have good catches and go home, they will depress the local prices, whilst surrounding villages would pay a higher price, as they suffer from a lack of fish for the local market.

By using their cell phones to communicate with their home, and surrounding, villages whilst still at sea, the fishermen can more easily balance supply and demand along the coast, getting higher prices and lower wastage – one thing I do know is that the wastage in the Indian food supply chain is massive.

In many parts of the Emerging World, cash crop farmers can get the latest market prices for their crops live on their cell phones, so that unscrupulous middlemen can no longer rip them off, whilst in the Philippines, amongst other countries, you can send money via SMS.

In many countries, there are still relatively easy to achieve reforms, that cost little to implement, but that have significant paybacks. There are also considerable investments that need to be done, and the money to do them. It does make sense for China to improve its road and rail networks into the West of the country, it does make sense for Brazil to continue to expand its Oil E&P projects, it does make sense for Qatar to finish its gas to liquids projects.

The Emerging World is not perfect; any repeat of last year’s spike in oil prices will wreak havoc with India’s public accounts, whilst Russia seems to be confusing high commodity prices with good government.


Mexico is suffering an economic contraction on a par with 1995, but it is entirely external in its origin. Like Canada, they are too tied to the US. Unlike in 1995, however, they have been able to reduce interest rates to record lows. Perhaps if they cold just open up the oil sector...

After applying for a Nigerian visa, I suddenly received a whole load of “requests for assistance” from businessmen and deposed ministers. All in possession of considerable sums of money that they wished to share with me.

In many ways, it is not that the Emerging World is less risky than we believed, it is that the Developed World is a lot more risk; it is that risk that needs to be repriced.

The Emerging world has not “decoupled”. It was not really coupled in the first place.

via : http://scepticalmarketobserver.blogspot.com/2009/07/de-coupling-in-emerging-markets-are-we.html

[tags] De-coupling

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http://www.cnbc.com/id/32462466

Emerging Markets to Drive Up Commodities: Strategist
Published: Tuesday, 18 Aug 2009 | 7:41 PM ET
Text Size
By: JeeYeon Park
News Associate

We should expect another run in commodities heading into the fall, said Frank Holmes, CEO and CIO of U.S. Global Investors.

“[There’s] continuing demand that you’re seeing out of the emerging markets and in particular, seeing a lot of government policies out of China, and India—so these are all for infrastructure building programs and they’re going to continue,” Holmes told CNBC.

Holmes said there is an infrastructure buildup for copper [http://data.cnbc.com/quotes/US%40HG.1] wiring in China to build power stations for rural areas, which will create more jobs and increase demand for copper.

“You [also] see zinc prices pick up with the 'clunkers' program in China and India,” he said.

Holmes said gold prices [http://data.cnbc.com/quotes/US%40GC.1] tend to rise when there is big inflation or deflation. But he told investors to keep gold as "portfolio insurance,” and not to get rich.

“We have deflation because we have negative interest rates,” he said.

“And now we have deficit spending. So any country that has negative interest rates coupled with massive deficit spending, gold goes up in that currency. I’d always advocate a modest amount of 5 to 10 percent and you don’t buy gold to get rich. You have it as a portfolio insurance.”

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Copper n Aluminum
http://www.celicasg.org/index.php?topic=2631.msg63878#msg63878

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http://sg.news.yahoo.com/rtrs/20090917/tap-temasek-c3bb44c.html

* Portfolio up 32 pct from April to end-July

* Portfolio at $122 bln end-July; August in line with indexes

* Buys stakes in S.Korea's ENK and Brazil's San Antonio

* Still open to new investments in financials

SINGAPORE, Sept 17 - Temasek recovered from most of its portfolio losses this year as markets rallied, saving the Singapore wealth fund's blushes after ill-timed exits from Wall Street banks and giving it firepower for new deals.

CEO Ho Ching said any dip in markets could be a buying opportunity for the $122 billion investment firm that is still open to buying financials and investing in emerging markets.

Temasek [TEM.UL] lost over an estimated $4 billion on selling its stakes in Bank of America <BAC.N> and Barclays <BARC.L>, but said it had benefited from investing in rights issues for its portfolio firms such as Standard Chartered <STAN.L> since these investments more than doubled by the end of July.

"We are in a very good cash position," Ho said at Temasek's annual review on Thursday. "We think there are lots of opportunities in over the long-term."

The review showed Temasek's portfolio slumped S$55 billion or around 30 percent to S$130 billion in the year to end-March. Its portfolio then rose 32 percent to S$172 billion by end-July, and its August performance was in line with market indexes, Ho said.

For changes in the value of Temasek's portfolio, click: http://graphics.thomsonreuters.com/099/SG_TMSK0909.gif

The firm's value-at-risk was S$28 billion at the end of March, meaning it had a 16 percent probability it would lose that amount or more this financial year, down from a value-at-risk of S$40 billion a year earlier, the review said.

"We believe the worst of the global meltdown risks are behind us," said Ho. "While there are some green shoots of growth, some structural risks still remain for the medium term," she said.

Temasek is Singapore's second-biggest sovereign wealth fund after the Government of Singapore Investment Corp.

Ho, the wife of Singapore's prime minister, said Temasek's board would still search for her successor after CEO-designate and former BHP Billiton chief Chip Goodyear unexpectedly resigned in July over strategic differences.

"The big issue is new leadership. Strategy comes from the leadership. Until they sort out the issue of leadership, nobody is going to be clear what the strategy is," said the head of a private equity firm in Singapore, who declined to be identified.

For a newsmaker on Ho, click [ID:SIN529783]

PROFIT HIT

The investment company, whose sole shareholder is Singapore's Ministry of Finance, said net profit for the financial year fell two-thirds to S$6.2 billion, as it was hit by losses on financial stocks and lower contributions from earnings by its portfolio firms such as DBS Group <DBSM.SI>.

"Like investors everywhere they're just relieved that the market pulled back from the brink," said David Cohen of Action Economics in Singapore.

The role of sovereign wealth funds around the world, which oversee about $3 trillion in assets, changed from a key source of capital for struggling Western banks early in the crisis, to governments redeploying funds to stabilise home markets.

For a factbox on Temasek, click [ID:nSIN192308].

Temasek said in its annual review it had bought a 19.5 percent stake in South Korea's ENK, a supplier of cylinders for compressed natural gas, and 15.4 percent of Brazil oilfield services firm San Antonio International.

For a breakdown of Temasek's investments by region and sector, click: http://graphics.thomsonreuters.com/0...TMSKPF0909.gif

Temasek has published an annual report since 2004, part of efforts to be more transparent. Wealth funds have come under scrutiny from Western governments worried their investments may be politically motivated. (Additional reporting by Nopporn Wong-Anan and Brenda Goh; Editing by Anshuman Daga))

http://forums.hardwarezone.com.sg/showthread.php?t=2503261

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and one country that has been staying the course.... China on Africa.

http://news.bbc.co.uk/2/hi/africa/7118941.stm

  By Michael Bristow
BBC News, Beijing

Chinese migrants are following in the footsteps of European settlers, by seeking their fortunes in Africa.

In the 19th century, most of those drawn to Africa - businessmen, explorers, missionaries and soldiers - came from western Europe.

Now it is the turn of the Chinese. Over the last decade, tens of thousands have moved to Africa with Beijing's approval.

   

A Chinese farmer

There's no harm in allowing farmers to leave the country to become farm owners [in Africa]
Li Ruogu
China's Export-Import Bank head

They are settling all over the continent, in rural and urban areas, and are involved in agriculture, construction and trade.

This latest wave of Chinese migrants - thought to total up to 750,000 - is not the first to have travelled to Africa.

In the 1960s, China's communist leader Mao Zedong forged close links with the continent in a bid to garner political support.

But the Chinese who have moved to Africa in the last 10 years are going for economic, not political reasons as they did under Mao.

Boosting crop yields

They are part of China's bid to secure raw materials and markets for its manufactured goods, but they are also carving out their own opportunities.

A Chinese trader in Lagos, Nigeria

Chinese traders are also setting up shop in Africa

The head of China's Export-Import Bank, Li Ruogu, recently suggested just how important Africa could be for ordinary Chinese people.

In a speech in Chongqing, an administrative region with a large rural population, he urged Chinese farmers to move to Africa.

"Chongqing has a relatively strong agricultural base. Africa has many countries with plenty of land, but food output that is not up to expectations," he said, according to a local media report.

"There's no harm in allowing [Chinese] farmers to leave the country to become farm owners [in Africa]," he added.

Mr Li said the bank would fully support this migration with investment, project development and help with the sale of products.

But Chinese farmers have already started moving to Africa, according to Liu Jianjun of the China-Africa Business Council, which helps Chinese firms find business opportunities in Africa.

   

At first, people were not willing to go to Africa because it's too hot, there are diseases and there are wars
Liu Jianjun
China-Africa Business Council
http://news.bbc.co.uk/2/hi/asia-pacific/6264476.stm

China's hunger for African minerals

Mr Liu has personally sent several thousand Chinese people to Africa over the last few years from his home city of Baoding in Hebei Province.

His organisation mainly focuses on setting up agricultural companies, which he calls "Baoding Villages".

These Baoding farmers are working in Kenya, Uganda, Ghana and Senegal, growing crops with African partners and then turning them into food products.

"At first, people were not willing to go to Africa because it's too hot, there are diseases and there are wars," says Mr Liu.

"But after the Chinese government called for people to go, they were more positive."

Echoing the comments of bank chief Mr Li, he says Chinese farmers use their expertise to help Africans mechanise farms to increase crop yields.

Money motive

Experts say China is not yet a major player in African agriculture, but it is changing other economic sectors.

Chinese migrant workers eating in a compound in Angola (Picture by Kate Eshelby)

Many Chinese companies bring in cooks to feed their workers

Chris Alden, of the South African Institute of International Affairs, says the Chinese are beginning to have a big influence in retailing.

"Chinese migrants or former labourers on construction sites are opening shops, using their contacts to get cheap goods from China," he says.

As an example, he cites the provincial town of Huambo in central Angola, which had no Chinese shops seven years ago.

Five years ago there were five and now there are more than 20, says Mr Alden, who has just written a book called China in Africa.

Unsurprisingly, many Chinese migrants themselves say the chance to earn more money is the main motive for leaving their country.

Chinese worker Lu Shaoqing, who is helping to build sports stadiums in Angola, says he left his wife and seven-year-old daughter in Beijing for a number of reasons.

"I came here because I wanted to see Africa, and Angola is under reconstruction at the moment so I came to help with that," he says.

But he admits the 700-odd Chinese workers in his company have the chance to earn up to three times as much as back home in China.

Influence

Most Chinese workers, like Mr Lu, will spend just a few years in Africa before returning home to China.

   

There's not the sense that the streets are paved with gold but, for people who cannot find work, Africa is a realistic opportunity
Chris Alden
SAIIA

In pictures: China in Angola
http://news.bbc.co.uk/2/shared/spl/hi/picture_gallery/07/africa_china_in_angola/html/1.stm

Their influence on African society is reduced further because many travel without their families and live in all-Chinese communities.

Mr Lu's firm has flown over more than 20 Chinese cooks to make sure workers can enjoy their favourite meals.

But the Chinese are already changing the economic landscape in Africa as they seek to enrich not just their companies and their country, but also themselves.

And their influence is set to grow.

Mr Alden says with so many poor farmers in China unable to make a living off the land, Africa presents a host of inviting opportunities.

"There's not the sense that the streets are paved with gold but, for people who cannot find work, Africa is a realistic opportunity."

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http://www.afriquejet.com/news/africa-news/singaporean-investors-in-lagos-2009101336322.html

Afrique en ligne

Singaporean investors in Lagos

Ikeja, Nigeria - Some 30 Singaporean investors have visited Nigeria's economic capital city of Lagos to explore investment opportunities.

The investors, who met with Lagos State Governor Babatunde Fashola here Monday, are from the Chinese Chambers of Commerce and Singaporean Business Corporation, regarded as the most influential in Asia.

Fashola informed the investors, who were led by the Singaporean Minister of State for Trade, Commerce and Manpower, Mr Lee Yi Shyan, that Nigeria and Lagos in particular remained investors' first destination of choice.

``The continent of Africa provides the raw materials for industrial growth in the (other) continents of the world and the future of their economy depends largely on what happens on the African continent.

``In that wise, there is no country that can provide greater impact on the African continent than Nigeria, the most populous country in Africa with Lagos being the most conducive for it,' he said.

Fashola told the delegation that their business investments stood the benefit of expanding in all frontiers if they are located in Lagos, and encouraged them to attend the 2010 economic summit called 'Ehingbeti Summit' so they could obtain necessary technical, cultural and business information about Lagos state.

The Governor implored them to expedite action on replicating the success they recorded in their water systems delivery in Lagos state, while urging Singaporean experts studying the power generation proposal on Lagos to concretise it and make it the first real d evelopment issue between Lagos and Singapore.

In his response, the Singaporean Minister of State commended the achievements of the Fashola's administration since his assumption of over two years ago, which he said was based on being visionary.

``We will encourage our business delegations to come to Lagos, stay here, study the situations and come up with suggestions on areas where we can both cooperate,'' the Minister said, while extending a formal invitation to Gov. Fashola to attend the World City Project in June 2010 in Singapore to speak on his vision for Lagos State.

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For more news from alternative source, pls visit http://singaporenewsalternative.blogspot.com

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via : http://singsupplies.com/showthread.php?t=40590

[tags] Lagos Nigeria