Dead Presidents! - India Equity Research: Emerging Markets

Showing posts with label Emerging Markets. Show all posts

Sunday, June 27, 2010

Thursday, January 29, 2009

Thursday, November 22, 2007

Global investors are continuing with their investment strategy in emerging markets like India, despite weakening global macro-economic conditions, higher crude oil prices and credit concerns, a latest survey states.

According to global financial service provider Merrill Lynch's survey of fund managers for November, investors have remained heavily overweight on the emerging market equities and continue to favour the global technology, energy, materials and industrial sectors.

In the past month, the price of crude oil rose 18 per cent and credit spread. But majority of investors still favour equities and are comfortable with the idea that the global economy can withstand a downturn in the US and believe that bad macro economic news has been priced in, the survey said.

On the other hand, bears can argue that complacency lingers as 12 per cent of respondents expect a global recession in the next 12 months, it added.

However, the survey points out that bulls and bears do agree that the business cycle is maturing with 70 per cent of the panel believing the global economy has entered a late-cycle phase.

"Investors are holding their nerve despite the gloomy outlook for growth and profit expectations," independent consultant to Merrill Lynch David Bowers said. However, signs have emerged that portfolio managers are taking a more conservative view on how they would like to see companies use their cash flow, he added.

Sunday, October 07, 2007

More investors come into emerging markets

Emerging markets equity funds absorbed over $5 billion for the second consecutive week, but the fund flow pattern also indicated that investors were beginning to get cautious, according to Emerging markets Portfolio Funds Research.

Money Market, Balanced, Global Equity and US Bond funds all took in fresh money, and there was a clear shift within US equity funds in favour of Large Cap Value funds. Consumer Goods sector funds had their best week in over three years.

“Despite the hints of higher risk aversion during, this year’s story is clearly the accelerating shift by investors out of funds geared to the major developed markets — the US, Japan and the Eurozone — and into those focusing on emerging markets,” said EPFR Global Analyst Cameron Brandt said in his weekly note. “When you look at the numbers through the first three quarters of this year and 2006 the retreat from Japan and Europe Equity Funds is particularly striking,” the note added.

Asia (excluding Japan) and the diversified Global Emerging Markets (GEM) equity funds accounted for the bulk of the flows into emerging markets funds during the first week of October, taking in $2.87 billion and $1.84 billion respectively.

China was the favourite with country-specific investors, while flows into BRICs (Brazil, Russia, India and China) equity funds hit a 39 week-high in terms of percentage of assets under management.Korea, which has the biggest average country weighting among GEM Equity Funds, too continued to find favor with investors, with Korea country funds posting their 21st week of net inflows.

Flows into Latin America Equity Funds slowed but remained positive, with Mexico country funds taking over from their Brazil counterparts as a driver of inflows.

BRICs equity funds continued their recent rally, taking in a net $434.6 million for the week. Year-to-date, however, they remain well off the pace they set in 2006. And, with the exception of Brazil, the same was true for the funds geared to the individual BRIC countries.

EMEA (Europe Middle East Africa) equity funds had their best week since late July thanks in part to an influx of fresh money into South Africa country funds.

Despite posting their best weekly performance since the third quarter of 2006, Japan equity funds recorded their 27th consecutive week of net outflows. Investors are still concerned that the Bank of Japan (BOJ) will push ahead with its stated intention of normalizing interest rates, thereby undercutting an extremely fragile recovery in domestic demand and fueling an appreciation of the yen that will cut into export earnings. Japan’s central bank will meet on October 11.

The euro’s relentless appreciation against the dollar, and the implications that has for Eurozone exporters, is also weighing on investor sentiment towards Europe. They pulled another $1.22 billion out of Europe equity funds, pushing total outflows since the beginning of June over the $17 billion mark.

The global credit squeeze also appears to have pushed European economic growth onto the downward part of the growth cycle, with consumer and business confidence indicators dropping sharply in recent weeks.

Saturday, September 22, 2007

Next Bubble in Emerging Markets ?

Now that the great housing bubble in the US is bursting, attention has already shifted to where the next bubble will be. A large number of stock market strategists believe that it will be in emerging markets.
Why should we have another bubble? That’s an easy one—with the US Federal Reserve cutting rates by 50 basis points on Tuesday, Ben Bernanke has sent a powerful signal that he is willing to inject liquidity into the markets, brushing aside arguments that those who had lent imprudently should be left to stew in their own juice and that helping them out would create moral hazard, which would encourage further irresponsible risk-taking.
It’s a clear admission that the notion that markets have to go through periodic purges to get rid of their excesses is a non-starter in an age when financial markets are so large that they’re the tail that wags the economy dog.
There’s a school of thought which says that the markets have been having one long serial bubble for decades. It all started with the oil price rise of the 1970s, with the Gulf oil producers accumulating vast surpluses, most of which were funnelled to US banks. That led to a big rise in money supply in the US, setting the stage for a heady bout of lending by mortgage companies, which culminated in the Savings & Loan disaster of the 1980s.
Also at the same time, oil surpluses were lent by the banks to governments in Latin America. Later on in the 1980s, when interest rates rose and the dollar appreciated, these loans turned bad and led these countries into a debt trap.
The 1980s are often spoken of as a “lost decade” in terms of development for Latin America. In the US, the rise in interest rates led to the bust in the savings and loan associations and the biggest rescue operation by the US government in history. That was when, worried by the continuous rise in the value of the dollar and the loss of competitiveness to Japan, the US forced the Plaza Accord down Japan’s throat, forcing it to let the yen appreciate. That led to a fall in the value of the dollar, capital repatriation to Japan and a lowering of interest rates there to rock bottom to keep exports going. It created the mother of all bubbles in Japan, with the Nikkei going up to a stratospheric 39,000 and real estate values going through the roof.
But all bubbles have a nasty habit of popping, and when the Japanese bubble burst, it sent the country into a prolonged depression from which it is yet to recover.
After the bust in Japan, the Asian tigers became the next bubble, with capital flowing like water to these emerging markets. When that huge bubble burst during the Asian crisis, the money hotfooted back to the US, where the tech bubble was waiting to happen.
We all know how that ended and how Alan Greenspan’s rate cuts set the stage for the housing bubble in the US and, in keeping with the spirit of globalization, led to the first truly global bubble.
Coming back to the present, there are two arguments why emerging markets will be the next bubble. One of them, long supported by Michael Hartnett, global emerging markets equity strategist for Merrill Lynch, is that the rate cuts will lead to additional liquidity which will flow into emerging markets with their fast-growing economies.
Their argument is the familiar one of the current credit crisis being 1998 in reverse: while Fed easing in 1998, when there were massive credit problems in Asia, led to a flood of liquidity flowing into largely US tech stocks, this time the credit crunch is in the US and so the money will go to emerging markets.
The other, related view is the one advocated by research firm CLSA’s Russell Napier, who writes: “A new world order is emerging, where Asia and probably Europe lead global economic growth. The future increasingly looks like one where foreign private capital will seek non-US dollar exposure, forcing foreign central bankers to step up support for the US dollar and domestic liquidity creation. Such a seismic shift in global financial markets augurs the birth of a new world order.”
In other words, the weak dollar will force central banks to intervene in the foreign exchange markets to mop up dollars and that will release a flood of liquidity into their markets, creating a bubble.
Where’s the catch?
The catch is that the US economy must avoid a recession. Says Hartnett: “Financial crises followed by recession have resulted in bear markets (e.g., US/S&L 1990, Japan/land bubble 1990, US/tech collapse 2000). In contrast, financial crises not followed by recession have resulted in great buying opportunities (e.g., 1987 crash, Mexico 1995, Russia/LTCM 1998). We believe the latter will prove the case this time around for emerging markets.”
But won’t the US slowdown affect other economies as well? It will, but it’s all a question of relative performance. And a country like India, not very dependent on export demand, should do well.
What about the fact that the price-earnings multiples of markets such as China and India are already very high? It’s in the nature of bubbles and manias to forget about valuations. Remember the valuations of tech stocks at the height of the so-called “New Economy” bubble? If Merrill Lynch and CLSA are right, the blowout phase of the bubble could be just beginning.

Via Mint

Sunday, September 09, 2007

More money in emerging markets

All of the major equity and bond fund groups tracked by EPFR Global and geared primarily to developed markets posted net outflows in the week through September 5, as investors put their faith in cash and emerging markets.

They were especially comfortable with emerging Asian markets, committing $731 million to China, Greater China and Hong Kong Country Funds as part of $1.25 billion worth of flows into Asia ex-Japan Equity Funds.

Asia ex-Japan Funds have been this year’s best performers. According to EPFR Global, they have posted a collective year-to-date gain of 30.7% versus 6.3% for Global Equity Funds and a 5.4% loss for Japan Equity Funds. The $1.25 billion absorbed by Asia ex-Japan Funds was the sixth time in the past 10 weeks that they have posted net inflows in excess of $1 billion, and it brought the year-to-date total up to $4.74 billion.

Your Ad Here

Flows this week were helped by the greater freedom granted to Chinese investors, with foreign money flowing to markets such as Hong Kong that are expected to benefit. However, it is still well off last year’s pace, when these funds ended the year with net inflows of $16.7 billion.

Meanwhile, Global and US Bond Funds and US, Japan, Europe, Global and Pacific Equity Funds posted collective outflows of $8.11 billion with two thirds of that total coming from US Equity Funds.

“I think this is proof, if it was needed, that investors and fund managers are now judging emerging markets on their own merits rather than seeing them as a tail wagged by the US and Eurozone economies,” said EPFR Global Managing Director Brad Durham. “In addition to the fact these markets are now getting some of the safe-haven flows, we’re seeing a shift to quality within the asset class. And that quality, as far as investors are concerned, is in Asia.”

Optimism about emerging Asia’s prospects again translated into strong commodity prices and fresh inflows into Latin America Equity Funds. Year-to-date flows into these funds are now double last year’s total, although their performance gain of 26.4% lags the 46.5% these funds posted for all of 2006.

Among the fund groups geared to developed markets Japan Equity Funds suffered the biggest outflows when measured as a percentage of assets under management. The $445 million redeemed by investors brought year-to-date outflows up to $9.67 billion, compared to outflows of just $250 million last year and inflows of $13 billion in 2005.

Weak business investment figures and fears that a stronger yen will hobble the key export sector are but some reasons that investors refuse to buy into Japan’s slow but steady GDP growth.

Elsewhere, the diversified Global Emerging Markets (GEM) and EMEA Equity Funds both posted modest inflows for the week. The EMEA funds remain the worst performers, in both performance and flow terms, year-to-date among the fund groups geared to emerging markets.

This is largely due to the concentration of countries with large current account deficits - Hungary, South Africa, Turkey and Egypt - within this region and the fact that a string of investor-unfriendly actions has undercut sentiment towards Russia despite its huge oil and foreign exchange reserves.

The other diversified fund groups focusing mainly on developed markets, Global Equity Funds and Europe Equity Funds, also posted modest outflows as investors waited to see what the European Central Bank would do at its September 6 policy meeting. The Eurozone’s central bank left its key rating on hold, which could prompt investors to view some of the regions’ equities as oversold.

Investors in the US, meanwhile, continue to anticipate a rate cut before the end of the year — hence the paradox that, while investors continue to pull money out of US Equity Funds, the Growth oriented funds outperformed their Value counterparts across all capitalisations (large cap, mid cap, and small cap) for the seventh time in the past eight weeks.

That counterintuitive growth theme is also evident at the sector level, where Global Technology Sector Funds took in $213.9 million, the 10th time in the past 11 weeks they have absorbed fresh money. But fears about a credit squeeze battered Real Estate and Utilities Sector Funds again, with investors removing $310 million and $453 million respectively.

Energy Sector Funds were the week’s big winners as US inventories shrunk and rising tensions in the Middle East pushed oil prices close to their record highs. These funds absorbed a net $880 million.

Thursday, August 23, 2007

FIIs sell $21.8 bn shares in six emerging markets

Foreign institutional investors (FIIs) sold shares worth $21.8 billion in six emerging markets over the last one month, wiping out $581 billion in terms of market capitalisation.

The sale by FIIs in 17 trading days (since July 24 – the day on which the subprime mortgage defaults started taking their toll) accounts for 90.5 per cent of the net inflows of $24.146 billion from the start of 2007.

Of the $581 billion market cap wiped off from the six emerging markets, South Korea accounted for 220.54 billion, Taiwan $136.8 billion and India $115.27 billion. The Indonesian markets lost 41.95 billion, while the Philippines shed $22.18 billion in market cap.

Among the six emerging markets, the FIIs sold $9.09 billion shares in South Korea and $8.885 billion in Taiwan. These two markets account for 82.24 per cent or $17.981 billion of the total shares sold by FIIs in six emerging markets.

India, Indonesia and the Philippines have not seen large amounts of net foreign selling compared with South Korea and Taiwan. The FIIs sold $2.48 billion in India, $1.41 billion in Thailand and $4 million in the Philippines. Indonesia, however, witnessed a marginal inflow of $14 million.

The FIIs have been aggressive sellers in the South Korean markets since 2005, with outflows aggregating $12.140 billion in 2006 and $4.137 in 2005.

In the current calendar year, the FIIs sold shares worth $11.85 billion, of which $9.1 billion was sold since July 24.

The equities meltdown in emerging markets, led by the subprime crisis in the US markets, was followed by sell offs in the commodity markets too.

The sharp appreciation of the yen and the depreciation of the currencies of the emerging markets suggested some sell offs by hedge funds in the emerging markets.

According to Angel Broking research, the cycle of sell offs in equities, commodities and then currencies seems likely to be over. The markets may settle in the current zone, before taking off in emerging markets such as India.

Tuesday, May 29, 2007

BCA Research - Emerging Markets Strategy

Download here

Carlyle Group - Have Emerging Markets Finally Left Behind their Second Class Citizenship for PE Investors

Download here

Monday, May 28, 2007

Merrill Lynch - The second half of the bull

In the first half of the bull market (Oct 2002 to May 2006), global growth was strong, led by the United States. A falling US dollar boosted commodity prices and liquidity (as appreciating currencies in EM allowed interest rates to fall). EPS in EM rose sharply, and asset price returns were very strong with deep value commodity-sensitive sectors such as energy leading the way. In fact, the four global cyclical sectors (energy, materials, tech and consumer discretionary) contributed 56% of the total returns in all emerging markets between Oct 2002 and May 2006.

In the second half of the bull market (which we believe began in June 2006), emerging economies are likely to spend more of their savings to fund strong domestic economic activity. EPS should become less dependent on G7 demand. Domestic demand themes such as the consumer and infrastructure spending should wrestle leadership within the equity market away from the commodity cyclical and export groups. Returns should be positive, just less dramatically so, and domestic demand stocks should assume leadership. Micro drivers and the ability to deliver EPS likely will grow in importance, as should leverage in the corporate sector

Merrill Lynch is however Underweight on India as it is an Expensive GEM market with inflation, CB tightening. A Cheaper market would change their view.