investing

By Tomás Guerrero, ESADE Business School

During 2013, frontier markets’ performance was well above emerging markets. The reference index for emerging economies, the MSCI EM, ended 2013 falling by 2.6 per cent, while the benchmark for funds operating in frontier markets, the MSCI FM, gained 26.3 per cent. The BRICS’ stock markets experienced significant declines, with the exception of China, whereas frontier markets became the most profitable in the world.

In the cases of Bulgaria, UAE, Argentina and Kenya gains were above 50 per cent. Currently, this trend continues. So far this year, the MSCI FM has increased 18.5 per cent, while the MSCI EM has posted only a 5.1 per cent increase. Read more

The US dollar surged again on Wednesday against a basket of emerging market (EM) currencies, adding urgency to the question of which EM countries are most vulnerable to a receding “carry trade”, the multitrillion dollar flow that has swollen domestic debt markets since 2009.

A soaring dollar piles pressure onto EM carry trade investors, who typically borrow dollars at low interest rates in order to buy high yielding EM domestic debt. When the dollar surges, they suffer currency losses that offset their interest rate gains, prompting them to sell. Read more

Geopolitical risks rank as the top worry among global investors, eclipsing economic concerns such as a weakening Chinese economy and slowing emerging market (EM) growth, according to a survey of 941 investors announced by Barclays on Tuesday.

The survey, conducted in the second quarter of this year, contrasted with surveys in the first quarter of this year and fourth quarter of 2013, which showed China/EM growth and the tapering of monetary stimulus by the US Fed as top worries for the following 12 months (see chart).

The survey also found that EM investors favoured equities, local currency debt and high yielding benchmark bonds as investment choices. Read more

It’s worth remembering when the markets headlines are all doom and gloom: there’s (almost) always someone winning.

It all depends on your position: short sellers are pretty happy when markets fall. Carry traders may be delighted that a particular currency is tanking. And wild swings in the market may well be music to the ears for any investor in a volatility index. Read more

It’s a risky time to be investing in emerging markets. John Authers looks for opportunities and finds that emerging market exporters and frontier markets might be underpriced.

Sir Isaac Newton once famously cautioned against investing in the South Sea Company, but then bankrupted himself by piling heavily into the bubble in 1720 just before the crash.

His mistake, says Richard Titherington, Head of Global Emerging Markets at JPMorgan Asset Management, was that he was not good enough at “being wrong”. While the South Sea Company shares were soaring, it must have seemed to Sir Isaac that he had misread the market. Read more

It’s that time of the year again where visitors to China are deafened by firecrackers, mobbed by mass ranks of red-capped tourists, and overcharged for, well, everything. The year of the slippery snake is drawing to a close, the year of the galloping (and in 2014, wooden) horse is upon us.

But it’s also when CLSA gets one of its analysts to use their feng shui compass to figure whether this year’s qi will be good or bad news for investors. 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

The 4th in our series of guest posts on the outlook for 2014 is by Jan Dehn of Ashmore Group Head of Research, Ashmore Group

The outlook for Emerging Markets (EM) going into 2014 is dramatically better than at the start of 2013. Better fundamentals, stronger technicals and attractive valuations after a sharp technical sell-off in 2013 will lure investors. Tapering also poses less risk now, while many EM countries are now taking reforms very seriously. The way to approach this opportunity is through active management, because credit stories and elections feature prominently in the 2014 outlook. Read more

Emerging market equities look cheap. Andrew Pease, global head of investment strategy at Russell Investments, tells John Authers why it might be unwise to buy until after the Federal Reserve has started to taper off its bond purchases.

Brazil has been the Latin American market top dog for ten years, but that is being challenged by Mexico. Bartosz Pawlowski, global head of emerging market strategy at BNP Paribas, explains to Jonathan Wheatley why he thinks Mexico’s climb could continue.

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.

Emerging markets have suffered a big sell-off since May. Rob Drijkoningen, co-head of emerging market debt at Neuberger Berman, tells FTfm’s Steve Johnson that the sell-off has almost run its course and discusses which countries and assets are likely to perform best when buyers return.

By Sammy Suzuki of AllianceBernstein

For more than a decade, Brazil, Russia, India and China have dominated conversations about emerging market investments.

But as the BRICs-driven commodities boom wanes, it may be time for investors to rethink their approach to emerging market investing. Read more

By Gerardo Rodriguez of BlackRock

It is no secret that emerging economies have evolved enormously over the last decade: stronger institutions, sounder macroeconomic policies and resilient banking sectors have enabled local financial systems to develop in an unprecedented manner. This has helped a majority of these countries to turn the page on past crises and become much more attractive places to invest.

But the picture is now changing. As monetary policy in the US approaches an inflection point and the dollar strengthens, this new world order is being put to the test. Indeed, the market correction that began this spring is a good reminder of the complexity and variety of these many markets. Read more

There is a neat coincidence about Anthony Bolton announcing his planned retirement from its Fidelity’s China Special Situations investment trust – and putting out the news in the middle of the current emerging market turmoil.

But that’s probably all it is – a coincidence. Bolton won’t actually be going until April 1 next year which suggests that, far from being a rushed response to recent events, Monday’s move has been in the works for a while. Read more

 A trader shouts for attention in the crude oil futures pit, 20 August, 2004, on the floor of the New York Mercantile Exchange.

A little less active than this

When it comes to passive or active investing – ie selective stock picks vs index tracking – there’s a big difference between companies based in emerging markets, and their counterparts in developed markets.

You might think that investors in emerging market companies would be in the “pick-and-choose” camp – index tracking is more common in developed markets, surely, and the companies are better known? Actually, it’s the other way round. Read more

If investors were asked to give a chunk of money directly to emerging market governments, most would refuse. But in the stampede towards low-cost, index linked investment in emerging markets, many will effectively end up doing just that, according to a report in Monday’s FTfm.

Arjun Divecha, chairman of GMO’s board and manager of three of its emerging markets funds, says GMO research shows that about 35 per cent of the constituents of the widely benchmarked MSCI emerging market index are companies that are owned or controlled governments and that these companies actually account for about 70 per cent of the earnings generated by that index. Read more

Steve Jacobs, chief executive of BTG Pactual, thinks institutional investment in emerging markets will increase from the current 5-10 per cent of a typical portfolio to 10-20 per cent within five years.

Brazil, Russia, India and China. What do they have in common? Political risk and, consequently, discounted stock prices, says Phil Langham, portfilio manager for emerging markets at RBC Global Asset Management in London.

Brazil has been a concern for some time. “There seems to be a constant dribble of policy changes which narrows visibility,” he says. “Brazilian stocks are seeing an increase in their risk premium.” Read more