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Tuesday 14 October 2008
More Gloom for Emerging Markets
Emerging markets will face more gloom after suffering their worst quarterly loss in history as the global financial crisis starts to bite into their high-growth economies, private bankers in Asia warned Monday. PDF
By Jeffrey Hodgson and Nishant Kumar – Reuters 13 October 2008
Emerging markets will face more gloom after suffering their worst quarterly loss in history as the global financial crisis starts to bite into their high-growth economies, private bankers in Asia warned Monday.
Emerging markets, which suffered a full-blown crisis just a decade ago, are most vulnerable to prolonged pessimism because investors have probably already decided to keep their money in more liquid markets,
“The one thing that makes these markets a lot more volatile than, for example, the U.S. or the European markets is they’re thinly capitalized,” said Marcel Kreis, head of Asia-Pacific private banking for Credit Suisse. “Everyone is going to be reminded again that it is easy to buy. It’s a hell of a lot more difficult to sell. And it’s one of the reasons why we say be a little bit more cautious on direct investments in emerging markets.”
Emerging-market equity funds saw more than $30 billion in outflows in the first nine months of the year after inflows in each of the past five calendar years, according to estimates from Morgan Stanley. The outflows have wiped out over a fifth of the total inflows between 2003 and 2007.
After rising more than 36 percent last year, MSCI’s main emerging-market equity index hit a new three-year low Friday. The index has fallen more than 50 percent this year, much of that in the third quarter.
The index gained more than 4 percent Monday after policy makers around the world took increasingly bold steps to rescue the financial system, including guaranteeing bank deposits and taking ownership stakes in banks.
But the private bankers, who cater to the very rich, said that the impact of the global financial crisis on emerging economies was still unfolding and that many countries had heavy exposure to beaten-down commodity prices.
Corporate failures are also likely to increase across Asia as the global financial crisis, which makes it harder to secure access to credit, drives weaker companies to insolvency, said Jennifer Tay, the Asia-Pacific head of portfolio counselling for Citi Private Bank, a unit of Citigroup. The bank has warned its wealthy Asian clients that emerging markets are likely to suffer further losses in coming months, particularly in countries where political uncertainty is high.
“For the next few months, anything that is emerging-markets-oriented, they would have a further beating, that is what we anticipate,” Tay said. “It doesn’t help that the geopolitical situation in this area is also not great.”
Russia, Romania, Ukraine and Indonesia are among the countries that have recently suspended trading on their markets to halt selling by panicked investors.
While private bankers said the strong, long-term economic outlook remained intact for many emerging markets, particularly in Asia, the risks of jumping into the asset class now were probably too high. Pierre Baer, SG Private Bank’s chief executive for Singapore and South Asia, said, “We don’t see the impetus happening now. Not yet.”
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More Gloom for Emerging Markets
By Jeffrey Hodgson and Nishant Kumar – Reuters
13 October 2008
Emerging markets will face more gloom after suffering their worst quarterly loss in history as the global financial crisis starts to bite into their high-growth economies, private bankers in Asia warned Monday.
Emerging markets, which suffered a full-blown crisis just a decade ago, are most vulnerable to prolonged pessimism because investors have probably already decided to keep their money in more liquid markets,
“The one thing that makes these markets a lot more volatile than, for example, the U.S. or the European markets is they’re thinly capitalized,” said Marcel Kreis, head of Asia-Pacific private banking for Credit Suisse. “Everyone is going to be reminded again that it is easy to buy. It’s a hell of a lot more difficult to sell. And it’s one of the reasons why we say be a little bit more cautious on direct investments in emerging markets.”
Emerging-market equity funds saw more than $30 billion in outflows in the first nine months of the year after inflows in each of the past five calendar years, according to estimates from Morgan Stanley. The outflows have wiped out over a fifth of the total inflows between 2003 and 2007.
After rising more than 36 percent last year, MSCI’s main emerging-market equity index hit a new three-year low Friday. The index has fallen more than 50 percent this year, much of that in the third quarter.
The index gained more than 4 percent Monday after policy makers around the world took increasingly bold steps to rescue the financial system, including guaranteeing bank deposits and taking ownership stakes in banks.
But the private bankers, who cater to the very rich, said that the impact of the global financial crisis on emerging economies was still unfolding and that many countries had heavy exposure to beaten-down commodity prices.
Corporate failures are also likely to increase across Asia as the global financial crisis, which makes it harder to secure access to credit, drives weaker companies to insolvency, said Jennifer Tay, the Asia-Pacific head of portfolio counselling for Citi Private Bank, a unit of Citigroup. The bank has warned its wealthy Asian clients that emerging markets are likely to suffer further losses in coming months, particularly in countries where political uncertainty is high.
“For the next few months, anything that is emerging-markets-oriented, they would have a further beating, that is what we anticipate,” Tay said. “It doesn’t help that the geopolitical situation in this area is also not great.”
Russia, Romania, Ukraine and Indonesia are among the countries that have recently suspended trading on their markets to halt selling by panicked investors.
While private bankers said the strong, long-term economic outlook remained intact for many emerging markets, particularly in Asia, the risks of jumping into the asset class now were probably too high. Pierre Baer, SG Private Bank’s chief executive for Singapore and South Asia, said, “We don’t see the impetus happening now. Not yet.”
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