Skip to main content

New Way To Look At Risk In Emerging Markets



As of the end of August, the MSCI Emerging Market Index have gained 48% year to date, while MSCI global equities have increased 18%. High global liquidity, improvements in risk appetite, falling core markets volatility (VIX), rebounding commodity prices and relatively stable emerging markets fundamentals in comparison to past episodes of crisis are behind the recovery. Moreover, EM countries' policy response to the crisis has been relatively aggressive, planting the seeds for a positive domestic demand story. However downside risks remain in place due to uncertainties about the shape of the global recovery, profit taking, revival of global risk aversion, and higher US Treasury yields. Moreover, corporates may post worse-than-expected earnings reports as Q2's improvements were largely driven by cost-cutting efforts not by a recovery in demand. Since it reached bottom in November 2008, EM equity markets have jumped 81%.

In August, EM equities lost some steam (-0.8% m/m vs. +14.6% m/m in July), lead by a correction in Asia ex-Japan (-5.3% m/m vs. +17% m/m in July), while Latin America (+3% m/m vs. 11.3% m/m in July) and EMEA (+5.1% m/m vs. 11.7% m/m in July) showed less buoyant performances. Increasing concerns about the global recovery, in particular concerns that China's government will start slowing down credit extension and companies reporting worse-than-expected earnings, as well as profit taking and higher risk aversion, capped these markets. In the same month, world markets increased 4.4% m/m vs.8.8% m/m in July.


Outlook:
  • August 3, 2009: According to Michael Wang, emerging markets strategist at Morgan Stanley: “Previously, emerging markets were seen as a geared play on developed markets because of their dependence on exports. But this is different. Asia and Latin America haven’t had the fundamental problems in the banking sector that the developed world has had, so lending and credit growth has resumed rapidly and this is helping drive growth.” However, Mr Wang pointed out that “There is the possibility of an incipient asset bubble, particularly with regard to China, but that is not our base case scenario, which is still for them to go higher”.
  • July 27: "Research by Société Générale's cross asset team argues it is time to sell because the price-to-book value of emerging-market stocks is now higher than those in the developed world. The only other time this valuation measure was at a premium to that of the developed world was from mid-2006 to mid-2007. Emerging-market equities fell by two-thirds in the 12 months to the start of November 2008.
  • July 13: July 13: According to Citigroup equity strategist Geoffrey Dennis and Jason Press “The correction in regional equity markets has reached the expected 10-15 percent range.” “Although the mood has turned sour on worries over the timing of economic recovery, there is little more downside from here and expect regional markets to break out to the upside again later this summer.”
  • The MSCI Emerging Markets Index may climb to 985 by June 2010 from its closing price of 743.72 on June 18th, Jonathan Garner, Morgan Stanley’s chief Asian and emerging-market strategist, wrote in a research note. Profits will rebound 28 percent next year after a 15 percent slide in 2009, Garner wrote. That compares with his earlier forecast for a 20 percent gain in 2010 and a 25 percent drop this year.
  • June 15: Deutsche Bank AG said that Latin American stocks may drop 15 percent this summer (2009) because of increased share sales in Brazil, weaker China bank lending and the unlikelihood of a rebound in the U.S. economy in the second quarter.
  • June 2: The surge in emerging-market equities may last another six months (until the end of 2009) as faster economic growth in developing countries prompts investors to keep shifting out of lower-yielding assets. Emerging-market stocks may keep on gaining as investors shift some of the $3.8 trillion in money market funds into equities.
Regional Performance:

    Asia (ex-Japan): Asian equities have outperformed mature markets in 2009 thanks to continuous foreign institutional investor (FII) inflows amid diminishing risk-aversion among global investors and relatively resilient macroeconomic fundamentals. Markets have gained 46% YTD as of August 31 (78% since October 2008) with India (68%) and Indonesia (75%) as the best performers, and China (39%) and Malaysia (36%) as the laggards. Sri-Lanka posted an exceptional 131% gain due to the end of the 26-year civil war, a $2.5-billion loan agreement with the International Monetary Fund and the government's positive stance on reforms and liberalization. Asian markets have recovered 54% of the losses incurred in 2008 (peak to trough, down 59%).

    Latin America: Latin American equities has outperformed the other emerging markets regional indexes by rising 59% YTD to August 31 (99% since it hit bottom in November 2008), with strong performances in Brazil (71%) and Colombia (55%). The laggards are Argentina (41%) and Mexico (34%). Overall, LatAm equities market have recovered 46% of the 2008 crash (peak to trough, down 68%).

    Eastern Europe, Middle East and Africa (EMEA): EMEA equities market have gone up 42% YTD to the end of August and 77% since it reached bottom in March 2009. Turkey (66%) and Russia (59%) lead the mark, while Morocco (-3%) and South Africa (16%) have underperformed. EMEA stock markets have recovered 39% of the sharp correction induced by the global crisis (peak to trough, down 66%)

    Recent EM market Dynamics:

  • Latin American stocks reached a new 2009 high while Brazil's currency rose to the highest level in a year on Tuesday, after the improvement of the country's ratings. Brazil's real strengthened 1% to 1.799 per dollar, which was its strongest since exactly a year ago. The Latin American stock index rose 1.02% to 3,643.10, and the broader emerging markets stock index added 1.27%.
  • Stocks from developing-nation dropped 0.9% after trading at the highest level relative to profits since 2000, according the MSCI Emerging Markets Index. (Bloomberg, 09/21/09)
  • August 31, 2009: Emerging market stocks fell sharply by the end of August on concern a slowdown in Chinese lending will curb growth in the world’s third-largest economy.
  • August 13, 2009: August 12th: Emerging market stocks contracted the most this month after Chinese companies reported worse than expected earnings and Russia's economy contracted by a record amount, creating concerns about an economic recovery. The MSCI contracted 1.4%. On August 3rd the MSCI closed above 855.47 on for the first time since the collapse of Lehman Brothers in September, as speculations of an easing to the global recession were bolstered by a positive report on U.S. manufacturing and rising commodity prices. In Asia, stock indices were supported by better than expected earnings from energy producers due to higher oil prices.
  • August 12, 2009: Emerging market stocks contracted the most this month after Chinese companies reported worse than expected earnings and Russia's economy contracted by a record amount, creating concerns about an economic recovery. The MSCI contracted 1.4%. (Bloomberg) August 6, 2009: "Moody's reiteration, on Wednesday, of Mexico's existing sovereign credit rating (Baa1), with a stable outlook, does not alter Citigroup's view that the risk of a ratings downgrade is a threat to Mexican equities later this year. Accordingly, the positive market action in response to the Moody’s announcement (including a rally in the peso through P$13.00/dollar) may be overdone."
  • July 28: "I wouldn't want to encourage people to invest in China and India who have never invested before," cautioned Jim O'Neill, Goldman Sachs chief economist. "Wait for a correction."
  • July 28: "Investors around the world have been pouring money into emerging-market stocks faster this year than at any other comparable time on record, despite strategists' fears of a bubble. They plowed a record $35.5 billion into emerging-market stock funds in the first half, according to funds-flow research firm EPFR Global, whose data go back to 1995. By contrast, investors withdrew $61 billion from developed-market stock funds over the same period, EPFR said."
  • July 8:“Risk aversion levels have risen across the board,” said Nigel Rendell, a senior emerging-market strategist at RBC Capital Markets in London. “While sentiment is still uncertain, emerging markets generally will be weaker.”

Comments

k said…
wat, run out of cute girls to post oredi ah??? have to resort to monkeys now...
jeremy tan said…
what happened to the girls photo? now its a monkey and a black goat? l0lz

Popular posts from this blog

My Master, A National Treasure

REPOST:  Its been more than two years since I posted on my sifu. This is probably the most significant posting I had done thus far that does not involve business or politics. My circle of close friends and business colleagues have benefited significantly from his treatment.


My Master, Dr. Law Chin Han (from my iPhone)

Where shall I start? OK, just based on real life experiences of those who are close to me. The entire Tong family (Bukit Kiara Properties) absolutely swear that he is the master of masters when it comes to acupuncture (and dentistry as well). To me, you can probably find many great dentists, but to find a real Master in acupuncture, thats a whole different ballgame.


I am not big aficionado of Chinese medicine or acupuncture initially. I guess you have to go through the whole shebang to appreciate the real life changing effects from a master.


My business partner and very close friend went to him after 15 years of persistent gout problem, he will get his heavy attacks at least…

PUC - An Assessment

PUC has tried to reinvent itself following the untimely passing of its founder last year. His younger brother, who was highly successful in his own right, was running Pictureworks in a number of countries in Asia.

The Shares Price Rise & Possible Catalysts

Share price has broken its all time high comfortably. The rise has been steady and not at all volatile, accompanied by steady volume, which would indicate longer term investors and some funds already accumulating nd not selling back to the market.


Potential Catalyst #1

The just launched Presto app. Tried it and went to the briefing. Its a game changer for PUC for sure. They have already indicated that the e-wallet will be launched only in 1Q2018. Now what is Presto, why Presto. Its very much like Lazada or eBay or Alibaba. Lazada is a platform for retailers to sell, full stop. eBay is more for the personal one man operations. Alibaba is more for wholesalers and distributors.

Presto links retailers/f&b/services originators with en…

How Long Will The Bull Lasts For Malaysia

Are we in a bull run? Of course we are. Not to labour the point but I highlighted the start of the bull run back in January this year... and got a lot of naysayers but never mind:






























p/s: needless to say, this is Jing Tian ... beautiful face and a certain kind of freshness in her looks and acting career thus far



http://malaysiafinance.blogspot.my/2016/12/bank-negara-may-have-switched-on-bull.html


I would like to extend my prediction that the bull run for Bursa stocks should continue to run well till the end of the year. What we are seeing for the past 3 weeks was a general lull where volume suddenly shrunk but the general trend is still intact. My reasons for saying so:

a) the overall equity markets globally will be supported by a benign recovery complemented by a timid approach to raising rates by most central banks

b) thanks to a drastic bear run for most commodities, and to a lesser extent some oil & gas players, the undertone for "cost of materials" have been weak and has pr…