equities

A fascinating note has arrived in our inbox from Steven Holden of Copley Fund Research, which tracks the investments of 100 big global EM equity funds with about $285bn of assets under management.

Readers may remember a recent piece based on his monthly report in October, showing that big fund managers were predominantly underweight in China compared with the MSCI Emerging Markets index, and overweight in India. An analysis of data from his November report shows that, on average, managers are in line with the MSCI regarding Russia – but that, individually, they diverge greatly from the index, in ways that suggest contrasting views on the crisis in Ukraine and how to play it as an investor. Read more

More bad news for Morocco this week, after it was banished from the Africa Cup for pushing to delay the football tournament out of Ebola fears. S&P Dow Jones has downgraded the equities market one of north Africa’s most stable and promising countries from its index of emerging markets to its frontier market index.

Alone among Arab countries, Morocco managed to weather the political tumult of the Arab Spring, even forging an unprecedented compromise with moderate Islamists that maintained stability without resorting to widespread state violence and helped the country maintain an average annual GDP growth rate of 3.5 per cent since 2011. Read more

After enduring 13 days of straight losses, Nigerian stocks have the questionable honour of being the world’s worst performing this year. Yet the man in charge of the stock market is not worried about a full-blown crisis. “I’m not expecting to see a sell-off, and indeed we haven’t seen a sell-off” said Oscar Onyema, chief executive of the Nigerian Stock Exchange, in an interview with beyondbrics. Rather, he says “the Nigerian stock market has adjusted downward, as you would expect in an OPEC country.” Read more

A double dose of gloom from Capital Economics on Tuesday. Its proprietary EM GDP tracker – compiled from monthly data on output and spending as an advance proxy for GDP – shows growth slowing across emerging markets to its slowest pace since early last year. A separate report shows that while EM assets have suffered across the board this month, the pain has been particularly severe in Latin America and especially in Brazil.

First, here are the charts from the GDP tracker. They show growth across EMs slowing to 4.3 per cent year on year in July, down from 4.5 per cent in June. Capital says preliminary data for August suggest growth will be even slower, at 4.1 per cent. Read more

South Korea’s benchmark Kospi index hit a three-year high this week on the prospect of rising dividends after the government announced tax measures aimed at unlocking billions of dollars in corporate cash reserves. It also unveiled a $40bn stimulus package to boost the country’s flagging economy as Choi Kyung-hwan, the new finance minister, promised to introduce expansionary fiscal policy. Read more

By Sharon Fay of AllianceBernstein

Stock markets in emerging markets have gotten off to a rough start this year after a challenging 2013. Valuations have fallen and volatility remains high. So should investors add exposure to emerging markets—or is it better to steer clear?

In our view, it’s probably too early for a large tactical shift towards emerging markets. But we do think the time is right for investors who are underweight EMs—or who lack exposure altogether—to start rebalancing towards their strategic targets in developing-world stocks. While short-term caution is appropriate, we think EM stocks continue to provide a good long-term opportunity—especially for active managers. Read more

The fondness felt by investors towards frontier markets has not dissipated since turmoil struck their emerging market cousins in October last year. In fact, feelings have climbed to a new pitch of devotion.

But the chart below raises an obvious question – has the ardour been overdone? Only rarely in the recent past have FM equity valuations traded at such a generous premium to EM counterparts. Read more

Now that’s what you call a change in sentiment. Outflows from emerging market equity funds so far this year have already eclipsed net sales from all of 2013.

Outflows from EM equity funds in the week to Feb 5 were a whopping $6.4bn, after a $6.3bn outflow in the week before, according to data from EPFR and distributed by Barclays. Read more

For all the talk of differentiation, emerging markets are having a bad Monday. Major currencies, such as the Turkish lira and Indian rupee have been hit; equity and bond markets are falling. As Benoit Anne of Société Générale put it, “global emerging markets are now trading in full-blown panic mode”.

But the recent message to investors from analysts was to look beyond emerging markets as a single asset class. “The real lesson from recent events is that the need for investors to discriminate between individual EMs has never been greater,” said Neil Shearing of Capital Economics. Clearly, the lessons are not being heeded. Read more

If investing is all about value creation, the latest batch of figures from Brazil’s central bank make for sobering reading. They show the rich returns you can make when investing in Brazil goes right – and the huge losses that result when it goes wrong. Over the past three years, foreign direct investors and buyers of Brazilian portfolio assets have suffered value destruction on a colossal scale.

An analysis of central bank figures by beyondbrics shows that ,taken together, flows of foreign direct investment to Brazil and foreign investment in Brazilian portfolio assets were worth more than $260bn between January 2011 and November 2013. Over the same period, in spite of those inflows, the value of such assets held by foreigners fell from $1,351bn to $1,327bn, a loss of $24bn, implying value destruction of more than $284bn in less than three years. Read more

Frontier markets climbed by almost a third over the past year, while emerging markets fell. James Mackintosh, investment editor, analyses why and whether this can continue.

China’s IPO season has officially reopened. Five companies said on Tuesday they had received approval from the China Securities Regulatory Commission to issue new shares, bringing China’s longest ever IPO drought to an end. Read more

The 8th in our series of guest posts on the outlook for 2014 is by John-Paul Smith of Deutsche Bank

We continue to recommend that investors underweight emerging equities in a global portfolio, despite the MSCI EM having under-performed the S&P by almost 30 per cent in 2013 and by more than 50 per cent over the past three years. We are no longer especially optimistic about US equities going into 2014, as valuations now appear to price in the underlying strengths of the economy and corporate sector, but the relatively low level of valuations of emerging equities does not yet offset the more negative fundamental factors. Read more

If you had $100 at the start of 2013, and took a punt on a few emerging market exchanges, which ones would have made you a fast buck, and which would have reduced you to tears?

Beyondbrics takes a look at the best and worst performers in 2013. Read more

Frontier markets are up 15 per cent in 2013, compared with a 2 per cent rise in emerging markets. Rob Minto of beyondbrics looks at the factors driving the success of frontier markets, and at whether investors have missed the rally.