Emerging-market stocks fell the most ever last year but investors are looking for Brazil, Russia, India and the mainland to lead a reversal in 2009.
The global economic slowdown and slump in commodity prices sent the MSCI Emerging Markets Index down 54 per cent in 2008, compared with a 38 per cent drop in the Standard & Poor’s 500 Index and a 42 per cent loss in the MSCI World Index.
Developing-nation stocks are trading near their cheapest levels in a decade. But Mark Mobius at Templeton Asset Management and Uri Landesman at ING Groep NV are snapping up stocks of the so-called BRICs on speculation global infrastructure spending and interest-rate cuts will help the economies avoid the recession afflicting developed nations.
“Global rate cuts and stimulus plans are going to drive consumption, which most likely will be spent in infrastructure, thus boosting stocks of materials and energy producers of countries like Brazil and Russia,” said Mr. Landesman, who oversees US$2.5 billion at ING’s asset management unit in New York.
The 746 companies in the MSCI Emerging Markets Index are now trading at 8.5 times earnings, up from 6.1 times on December 4, the cheapest in a decade.
The MSCI BRIC Index lost 58 per cent last year after demand for oil, steel, iron ore, soybeans and other raw materials waned.
The acronym BRIC was coined by Goldman Sachs Group in 2001 to encompass the four emerging markets it predicted would join the United States and Japan as the world’s biggest economies by 2050.
“We’re having a wonderful time buying tremendous bargains,” Mr. Mobius, who oversees about US$26 billion as executive chairman of Templeton, said. “As value investors, this is the best time to be investing.”
The worst US housing slump since the Depression and credit losses of more than US$1 trillion at financial firms worldwide pushed the global economy into a recession, prompting developed countries to cut interest rates and boost spending.
US president-elect Barack Obama has said he will increase spending on roads, bridges and public buildings to create 3 million jobs. The European Union unveiled a €200 billion (HK$2.1 trillion) stimulus proposal for the 27-nation economy. Japan will spend 10 trillion yen (HK$8.5 trillion) on its economy while China announced a 4 trillion yuan (HK$4.55 trillion) investment plan after the economy grew in the third quarter at the slowest pace in five years.
“I’m optimistic; I think we’ve taken our medicine,” said Arthur Byrnes, chairman of Deltec Asset Management. “My view is we’ve seen the bottom and things are very cheap.”
Merrill Lynch has said that even as fund managers started reducing allocations for emerging-market stocks for 2009, they are increasing those for equities in China and Brazil.
The CSI 300 Index, the biggest gainer in 2007 among 89 global stock markets, slid 66 per cent last year, the first annual decline since it was created in April 2005. The index, a benchmark gauge of companies traded in Shanghai and Shenzhen, soared 162 per cent in 2007.
Merrill’s global emerging-markets equity strategist Michael Hartnett said most fund managers were planning to buy shares in China and Brazil and sell those in Mexico and South Korea.
China’s CSI 300 index now trades at 12.6 times earnings, down from 53.2 times in October 2007. The 66 companies in Brazil’s Bovespa index trade at 8.8 times profit after reaching a high of 17.4 times on May 23.
The World Bank has forecast China’s economy will expand by 7.5 per cent in 2009, while the government is targeting 8 per cent growth.
“Economic growth in China will be stronger in the second half of 2009 than people are currently discounting, so the outlook for emerging markets in 2009 is very positive,” Mr. Landesman said. Brazil’s stock market is Mr. Landesman’s favourite among the BRICs, followed by Russia and China.
The Bovespa index, which lost almost half its value after reaching a record 73,516.81 on May 20, will rebound this year as the Brazilian central bank cuts borrowing costs to boost consumer demand, according to strategists. Banco Santander forecasts the Bovespa to rise 30 per cent this year to 49,000.
Energy producer Petroleos Brasileiro and miner Cia Vale do Rio Doce, the two largest stocks in the Bovespa, fell 48 per cent and 53 per cent last year, respectively. Oil and raw material stocks account for 52 per cent of the MSCI Brazil Index.
Russia’s rouble-denominated Micex Index was the worst performing market among the BRICs, losing 67 per cent in 2008, as oil prices plunged to below US$50 a barrel after reaching a record of US$147.27 a barrel in July. Oil company OAO Gazprom, Russia’s biggest publicly traded company, plummeted 69 per cent.
“We are maintaining an overweight on Russia because of valuations,” State Street Global Advisors’ investment strategist George Hoguet said last month. “The economy is facing strains due to oil but valuations are very, very cheap.”
India’s Sensitive Index of 30 stocks had its biggest decline since 1980, when the measure began, dropping 52 per cent in 2008 after climbing 47 per cent the year before. ICICI Bank, the second-largest lender, fell 63 per cent as the rupee slumped 19 per cent against the dollar.
“If you look at places like China, India, even Russia, which now seems to be having problems, but they all are sitting on huge foreign reserves,” Mr. Mobius said. “They have booming economies, and there’s no reason why they should not be the first ones to get the attention of investors.”
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Big Hopes for Emerging Market Stocks
Fabio Alves
4 January 2009
Emerging-market stocks fell the most ever last year but investors are looking for Brazil, Russia, India and the mainland to lead a reversal in 2009.
The global economic slowdown and slump in commodity prices sent the MSCI Emerging Markets Index down 54 per cent in 2008, compared with a 38 per cent drop in the Standard & Poor’s 500 Index and a 42 per cent loss in the MSCI World Index.
Developing-nation stocks are trading near their cheapest levels in a decade. But Mark Mobius at Templeton Asset Management and Uri Landesman at ING Groep NV are snapping up stocks of the so-called BRICs on speculation global infrastructure spending and interest-rate cuts will help the economies avoid the recession afflicting developed nations.
“Global rate cuts and stimulus plans are going to drive consumption, which most likely will be spent in infrastructure, thus boosting stocks of materials and energy producers of countries like Brazil and Russia,” said Mr. Landesman, who oversees US$2.5 billion at ING’s asset management unit in New York.
The 746 companies in the MSCI Emerging Markets Index are now trading at 8.5 times earnings, up from 6.1 times on December 4, the cheapest in a decade.
The MSCI BRIC Index lost 58 per cent last year after demand for oil, steel, iron ore, soybeans and other raw materials waned.
The acronym BRIC was coined by Goldman Sachs Group in 2001 to encompass the four emerging markets it predicted would join the United States and Japan as the world’s biggest economies by 2050.
“We’re having a wonderful time buying tremendous bargains,” Mr. Mobius, who oversees about US$26 billion as executive chairman of Templeton, said. “As value investors, this is the best time to be investing.”
The worst US housing slump since the Depression and credit losses of more than US$1 trillion at financial firms worldwide pushed the global economy into a recession, prompting developed countries to cut interest rates and boost spending.
US president-elect Barack Obama has said he will increase spending on roads, bridges and public buildings to create 3 million jobs. The European Union unveiled a €200 billion (HK$2.1 trillion) stimulus proposal for the 27-nation economy. Japan will spend 10 trillion yen (HK$8.5 trillion) on its economy while China announced a 4 trillion yuan (HK$4.55 trillion) investment plan after the economy grew in the third quarter at the slowest pace in five years.
“I’m optimistic; I think we’ve taken our medicine,” said Arthur Byrnes, chairman of Deltec Asset Management. “My view is we’ve seen the bottom and things are very cheap.”
Merrill Lynch has said that even as fund managers started reducing allocations for emerging-market stocks for 2009, they are increasing those for equities in China and Brazil.
The CSI 300 Index, the biggest gainer in 2007 among 89 global stock markets, slid 66 per cent last year, the first annual decline since it was created in April 2005. The index, a benchmark gauge of companies traded in Shanghai and Shenzhen, soared 162 per cent in 2007.
Merrill’s global emerging-markets equity strategist Michael Hartnett said most fund managers were planning to buy shares in China and Brazil and sell those in Mexico and South Korea.
China’s CSI 300 index now trades at 12.6 times earnings, down from 53.2 times in October 2007. The 66 companies in Brazil’s Bovespa index trade at 8.8 times profit after reaching a high of 17.4 times on May 23.
The World Bank has forecast China’s economy will expand by 7.5 per cent in 2009, while the government is targeting 8 per cent growth.
“Economic growth in China will be stronger in the second half of 2009 than people are currently discounting, so the outlook for emerging markets in 2009 is very positive,” Mr. Landesman said. Brazil’s stock market is Mr. Landesman’s favourite among the BRICs, followed by Russia and China.
The Bovespa index, which lost almost half its value after reaching a record 73,516.81 on May 20, will rebound this year as the Brazilian central bank cuts borrowing costs to boost consumer demand, according to strategists. Banco Santander forecasts the Bovespa to rise 30 per cent this year to 49,000.
Energy producer Petroleos Brasileiro and miner Cia Vale do Rio Doce, the two largest stocks in the Bovespa, fell 48 per cent and 53 per cent last year, respectively. Oil and raw material stocks account for 52 per cent of the MSCI Brazil Index.
Russia’s rouble-denominated Micex Index was the worst performing market among the BRICs, losing 67 per cent in 2008, as oil prices plunged to below US$50 a barrel after reaching a record of US$147.27 a barrel in July. Oil company OAO Gazprom, Russia’s biggest publicly traded company, plummeted 69 per cent.
“We are maintaining an overweight on Russia because of valuations,” State Street Global Advisors’ investment strategist George Hoguet said last month. “The economy is facing strains due to oil but valuations are very, very cheap.”
India’s Sensitive Index of 30 stocks had its biggest decline since 1980, when the measure began, dropping 52 per cent in 2008 after climbing 47 per cent the year before. ICICI Bank, the second-largest lender, fell 63 per cent as the rupee slumped 19 per cent against the dollar.
“If you look at places like China, India, even Russia, which now seems to be having problems, but they all are sitting on huge foreign reserves,” Mr. Mobius said. “They have booming economies, and there’s no reason why they should not be the first ones to get the attention of investors.”
Bloomberg
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