Friday, October 16, 2009

Emerging Markets Traded Past Its All Time High Vs Developed Markets

How many indices do you want to monitor? Well, this is smashing pumpkins on your forehead significant. If you group all the emerging markets and count it as an index, it has just breached through its all time high against the developed markets basket.

We all know that emerging markets were not that badly affected, especially their currencies. The weaker dollar did help the emerging markets over the past few weeks as well. Do the emerging markets have any business pushing through its all time high against developed markets? Well, the key is a posting I made about two weeks back, on a new way to look at risk in emerging markets.

What that means is that developed markets which used to trade at a premium or rather emerging markets that used to trade at a discount, are now having the roles reversed a bit because trade surpluses, better country balance sheets, savings rate and monetary discipline among emerging markets - all equate to a more attractive picture. While global trade suffered, especially on exports demand by developed countries, many of the emerging markets are finding better trade terms trading with each other. Its not just developed markets that have their stimulus plans, the emerging markets stimulus plans worked better because there was no "massive wealth destruction" in emerging markets as there was in developed markets ~ e.g. foreclosures, negative equity in properties, many ill fated REITs in dire straits...

So, the Dow at 10,000 or not, emerging markets should still chug along. The 10,000 level looked like a psychological barrier but as I have explained many times, its the low rates and lower risk aversion couple with more M&A that are pushing matters along. Stop looking at the nascent recovery in the real economy.

The second table is even more interesting, it looked at markets that have surpassed their all time highs, not their 2008 highs mind you, but all time. Imagine breaching your all time highs months after the most severe recession since the Depression, pretty significant huh.

At the top of the heap, the Colombian market is already 11% higher than its previous all time high. Israel and Chile are just 13% away. Indonesia is only 16% away. Peru just 20% and Malaysia not far behind, just 26% away like Switzerland.

The BRICs had a spectacular run in 2007 and 2008, so its natural for them to be still some distance from their all time highs. Brazil still 30% away despite a very robust market for the past 6 months. India still 37% away. China a massive 44% away. Russia have its own problems and still 57% away.

The US is just 33% away, same as Singapore, but UK is still 43% away. Even the robust Australia is still 35% away, just like HK.

The economies that are really hurting, suffering the most from the financial fallout are those that are the furthest from their all time highs. Roubini, look, many markets have not run ahead of themselves, investors are not stupid, really! Ireland still 78% away from its all time high. Belgium, Finland and Austria still 60% away. Poland and Norway still 52% away. To get some perspective, 50% away for Malaysia means the index is hovering at 700-750 (I think, looking at the new index calculation).

The equity markets rally is not the same for everybody, there is discernment, there is still reward and punishment, there is still discretion and sanity.


Thierry said...

I think it would be interesting to convert these performances to a single currency. The American market did pick up more then most European markets but at a cost, the US dollar. In Euro terms I dont believe there are much differences between US and Eu markets but I havent done the math.

Thierry said...

I think it would be interesting to compare these performances against one currency, it is true that the American market rose more then most European markets but to a cost, the US dollar.

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