Jpmorgan Brazil Investment Investors - JPB

Jpmorgan Brazil Investment Investors - JPB

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Stock Name Stock Symbol Market Stock Type
Jpmorgan Brazil Investment Trust Plc JPB London Ordinary Share
  Price Change Price Change % Stock Price Last Trade
0.00 0.0% 66.50 01:00:00
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66.50 66.50
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quepassa: For the Record. The 72p referred to above is the INITIAL PAYMENT by the liquidators. In the fullness of time, once all Trust fees, taxes, expenses and sundries have been fully tallied and paid, there may be a (modest) Final Payment. On 10/11/20, the NAV was 74.3p - investors received an Initial distribution of 72p. We don't know how much the liquidators received when selling the portfolio - and we don't know the final expenses- but maybe there is a penny or two still to come over time by way of Final Payment. ALL IMO. DYOR. QP
loganair: Brazil drowns in its own debt by Alex Rankine: With public-sector debt ballooning towards 100% of GDP, the state cannot afford generous fiscal support measures for much longer. Brazil’s democracy is tearing at the seams, says Ryan Berg on The country has just surpassed 100,000 coronavirus deaths, making it the world’s second worst-hit nation. The virus has deepened bitter political divisions. Embattled by Congressional opposition and Supreme Court probes, President Jair Bolsonaro’s supporters have called for a military coup. That’s unlikely, but political institutions, already discredited by massive corruption, are entering an advanced state of decay. A second chance: Bolsonaro’s election victory in October 2018 triggered euphoria in the stockmarket, with the benchmark Ibovespa index advancing 38% to January 2020. Yet shares then crashed a stomach-churning 43% as the pandemic hit. The market has since made up much of the lost ground, but is still down 12% for the year to date. That is a noticeable underperformance compared with the emerging-market average, down about 2%. Bolsonaro’s first 18 months in office have been disappointing for the country’s business community, says Bryan Harris in the Financial Times. Last year’s pension changes aside, promised reforms have fallen by the wayside. Economic growth has remained anaemic. Yet recent weeks have seen investors’ old “ebullience221; return. The proximate cause is a proposed tax reform, which should simplify one of the world’s most “byzantineR21; systems. Brazilian businesses are thought to spend an average of 2,000 hours complying with tax obligations, 20 times longer than their UK counterparts. Another reason for the recent rally is that government stimulus has turned out to be more generous than expected. A signature crisis measure has been a 600-real (£84) monthly stipend paid to workers in the hard-hit informal economy. Finance minister Paulo Guedes, a disciple of Milton Friedman, has emerged as “the world’s most reluctant Keynesian”, say Martha Viotti Beck and Mario Segio Lima on Bloomberg. Long an advocate of fiscal rectitude, the pandemic has forced him to run Brazil’s “biggest-ever budget deficit”, predicted to be at least 11.5% of GDP this year. The headwinds are considerable, says Craig Mellow in Barron’s. With public-sector debt “ballooning221; towards 100% of GDP, the state cannot afford generous fiscal support measures for much longer, says Alberto Ramos of Goldman Sachs. Brazil has “one of the weakest fiscal positions” of any emerging economy. Proposed tax reforms are badly needed, but Guedes will need to rally a majority in a fractious legislature. As Monica de Bolle of the Peterson Institute for International Economics puts it, talk of tax reform looks like an exercise in “shuffling deckchairs on the Titanic”.
loganair: From Fidelity to Schroders, Money Managers are Bullish on Brazil: Global portfolio managers are growing optimistic on the outlook for Brazil’s stock market, as the Bolsonaro administration finally delivered a long-waited social security overhaul and is set to unveil the next priority on its economic agenda. With pension reform out of the way, Economy Minister Paulo Guedes is expected to present a new agenda to Congress this week that focuses on tackling Brazil’s budget woes. It will probably include an administrative reform that restructures the civil service and cuts initial salaries, and may create a fiscal council to oversee federal, state and municipal budgets. “The prospects for equities in Brazil are bright given where we are in the economic cycle -- early -- as well as significant progress on the reform side, and attractive valuations,” said Will Pruett, who manages $542 million at Fidelity Management in Boston. Economists are expecting growth in Latin America’s largest economy to pick up to around 2% in 2020, more than double the expected rate this year, as the central bank lowers interest rates to fresh lows. Brazil is Schroders Plc’s preferred stock market in the region, according to Pablo Riveroll in London, the head of Latin American equities at the firm. The benchmark Ibovespa index has advanced 22% since the beginning of the year and some early signals of increased foreign interest are starting to emerge, after offshore investors missed most of the recent rally. “After years of weak economic growth and weak earnings momentum, the economy needs to accelerate to gather interest,” said Riveroll. “We think the conditions are there or almost there: pension reform approval, credible fiscal outlook, increasing confidence, low interest rates and inflation, and low leverage at the corporate and household level.” Here’s how investors have been playing Brazilian stocks: Fidelity, Pruett: Largest positions in Brazil are discretionary, industrial and health-care sectorsOptimistic on education, airlines, integrated health-care players, “as well as any business poised to benefit from the long-term migration of savings from government securities into higher risk products in search of yield.” Schroders, Riveroll: Likes Brazilian retailers, homebuilders, non-bank financials, tech and utilitiesUnderweight banks, materials and consumer staples. Has recently added to retailers; took some profits on homebuilders and reduced banks. Alliance Bernstein, Morgan Harting: Owns groups such as utilities that should benefit from government reforms, including Cia de Saneamento Basico do Estado de Sao Paulo, Centrais Eletricas Brasileiras SA and Equatorial Energia SA. Also likes Yduqs Part, B3 SA - Brasil Bolsa Balcao and Petroeo Brasileiro SA“We’re light on the bigger benchmark banks,” he said.
loganair: Moody's: Consumers are fueling the gradual recovery of Brazil's economy: -Consumers contributing the largest share of total economic output in Brazil, driving the economy's entire growth cycle -GDP recovery and low inflation add purchasing power to wage increases Similarly to most of the world's major economies, consumers contribute the largest share of total economic activity in Brazil and drive GDP. According to Moody's Investors Service in a new report, employment growth, low inflation, improving retail sales and rising consumer credit in a lower interest environment is supporting the gradual recovery of Brazil's economy. "In Brazil, employment growth is key to supporting consumption growth," says Moody's Senior Vice President Gersan Zurita. "Employment has been gradually improving since the end of the economic recession, with a rising share of the population slowly returning to the workforce. Furthermore, rising real wages coupled with low inflation and well-anchored inflation expectations is adding to consumer purchasing power." Retail sales are gradually improving as consumer confidence recovers after the recession. Broad retail sales, which include building materials and vehicles sales, have slightly recovered since the end of the recession but remain well below the cyclical peak reached in 2013. Conversely, the slow recovery in vehicles sales remains disappointing, with sales below the levels predating the recession. On the other hand, the outlook for housing looks more promising, with a more visible recovery in both units sold and values than consumer goods. Despite the slow recovery in consumption, the demand for consumer credit has continued to rise in both nominal terms and as a share of GDP. Moody's expects demand for consumer credit to continue to rise moderately in the next two years, particularly if the reforms succeed in Congress, which will enable rates to shift lower.
loganair: The positive momentum favouring the imminent passage of the Social Security Reform continues, with the goal to conclude the Lower House approval by the weekend. Such an impressive result should trigger a BRL rally, but the rally would be limited by the central bank’s willingness to cut rates, by as much as 150bp, which has reduced the currency's appeal. We are nearly there: After years of negotiations, and much political turmoil, it finally appears that we are days away from the approval of the social security reform by the Brazilian Congress. The pro-reform momentum improved sharply last week, with the approval of the reform by a wide margin in the Lower House’s Special Committee, and with Speaker Rodrigo Maia standing out for his leadership and savvy command of the House. In fact, congressional leaders aim to fast-track the debate and have the reform fully approved by the Lower House, which requires a 3/5 majority support in two rounds of the vote, by the weekend. Such an impressive result would consolidate Maia’s reputation and would bode well for the ambitious post-reform agenda advocated by the Speaker, which is broadly consistent with the agenda of the Bolsonaro administration, and includes the tax reform and the formal independence of the central bank. There remains some uncertainty about the timing and the content of the draft that the House should eventually approve. Passage of the proposal already approved by the Special Committee last week would be a favourable outcome. But the text could be improved with an amendment to, at least, facilitate the extension of the reform to states and municipalities, or it could worsen with, for instance, the easing of the retirement rules for police workers, as advocated by Bolsonaro. As it stands, the reform could generate savings of about BRL 0.9-1 trillion in 10 years, which is far higher than initial investor expectations and reflects a very mild dilution in the fiscal savings initially proposed by the Bolsonaro administration (BRL 1.1 trillion). This result would go a long way towards ensuring the long-term sustainability of Brazil’s fiscal accounts and should be enough to prompt a reassessment of the near-term credit ratings trajectory for Brazil. But actual upgrades may take a while longer and should depend, in our view, on the evidence of a stronger recovery in economic activity, which is expected to pick up pace in the second half of the year. Reform approval would green-light the monetary easing process: The approval of the reform should have an invigorating impact on the outlook for economic activity, but the reform should also have a benign impact on the inflation outlook. As a result, the reform’s approval should not prevent the central bank from adding to the monetary stimulus that is already in place. In fact, given the (1) ongoing improvement in current inflation trends, as illustrated by falling and fully-anchored inflation expectations, (2) the expected post-reform appreciating bias for the BRL and (3) the dovish shift seen in central banks across the world, we believe the balance of risks favours a larger, more frontloaded and more lasting cycle than currently priced in the local curve. Central bank officials have been on the defensive in their effort to justify their reluctance to ease monetary policy, despite the poor economic activity data and high unemployment. Inaction was generally justified by the lingering uncertainties regarding the passage of the social security reform. But with the reform approved and the yearly rate trending considerably below-target, at around 3-3.5% throughout 2H19, the central bank’s ability to justify inaction should weaken materially. Fully anchored inflation expectations and ample spare capacity. The BRL could lag other local assets: With the reform approved, political uncertainties related to the sustainability of fiscal accounts should ease materially and prompt an improvement in the outlook for economic activity and for local assets in general. The Brazilian Real should also rally, but the extent of that rally should be limited by the central bank’s willingness to cut rates (by as much as 150bp), which should reduce the currency’s appeal. Lower rates should also incentivize the use of the USDBRL as a (relatively cheap) hedge to external risks, such as trade wars, as other local assets such as equities and rates are seen as more appealing. In addition, as indicated by central bank officials recently, the lower cost of financing in BRLs has also reduced the inflow of USDs in Brazil this year. And this shift could intensify post-reform, as the SELIC policy rate is further reduced and the local debt capital markets deepen further. As a result, we now believe that the post-reform trajectory for the USDBRL may bottom at a higher level, closer to 3.6 than 3.4. In any case, with the reform approved this week or next, we would expect the Brazilian central bank to be able to launch the easing cycle in its 31 July meeting, possibly with a 50bp cut. This would bring the SELIC rate to a fresh record-low of 6.0%, from 6.5% now. Consecutive 50bp cuts would bring the SELIC rate to 5.0% by the end of October, but a shallower or less-frontloaded cycle should not be ruled out. A more frontloaded cycle would be amply justified as a catch-up measure needed to help address the paralysis in economic activity seen in recent quarters. The central bank’s own projection for 2019 GDP growth collapsed recently, moving from 2.0% as of the end of 1Q19 to just 0.8% as of the end of 2Q. And, as the chart below illustrates, Brazil’s GDP remains 5.5ppts below the peak seen in 2013. Disappointing economic activity and a long way to go to full recovery:
loganair: There are two simple reasons for the sell-off: one, profit taking. The first sign of weakness in the government was bound to trigger a sell-off. Brazil’s been a money maker since Jair Bolsonaro was elected in October, so why not take some money off the table the first sign of duress? This has been going on since February. The second reason is politics: Investors are less confident in key reforms, especially pension reform. There is no united front rallying around Bolsonaro on anything related to the economy. Earlier this week, Barclays Capital lowered its growth forecast for Brazil to 2.2%, rising to 2.6% next year.
loganair: The end of the year marks high hopes for Brazil in 2019 by ING Bank: The economic recovery hoped for in 2018 didn't really materialise, but the year ends with a post-election optimistic glow. Surging confidence indicators and continued monetary stimulus are all good signs for a faster recovery, but the sharp acceleration that some expect for 2019 remains conditional on Congress's approval of fiscal reforms. 2018 - a year of frustrated recovery expectations: Latest data has confirmed Brazil’s recovery has persisted but remains frustratingly slow. GDP is likely to grow at just 1.2% in 2018, which pales when compared to market expectations at the beginning of the year, which were close to 3%. Despite the expansion seen since the end of the recession, GDP is still five percentage points below the levels seen in 2013, in real terms. Growth expectations for 2019 have begun to climb, after remaining at 2.5% for a prolonged period and the post-election surge in some business and consumer confidence indicators suggests near-term growth prospects have indeed improved. However, even though we agree that election results have been positive for economic activity, as they improved the outlook for fiscal consolidation, the crucial question about the success of the fiscal effort remains. Despite the recovery in confidence, fiscal uncertainties are likely to keep investors and consumers relatively cautious in 2019. In particular, a robust recovery depends on the appetite of banks and borrowers and the progress of capital investment, especially infrastructure, where the bottlenecks prevail. In our view, this may only happen after there is more clarity about the fiscal trajectory. The passage of the fiscal consolidation agenda, for example, the social security reform remains a pre-condition for a sustained recovery in long-term business sentiment. The recently-elected Congress will be inaugurated on 1 February, but the new administration’;s strategy vis-à-vis the social security reform is still unclear. We still don’t know if crucial votes will happen immediately, (i.e. February/March) in case Congress just resumes the debate of the reform introduced by President Temer, or later in the year, likely in 3Q, if a new draft reform is submitted to Congress. In our base-case scenario, reform approval is more likely during 3Q, which would be more consistent with GDP growth close to 2.5% next year. However, an early approval (by the end of 1Q) would add material upside to our forecast, possibly towards 3-3.5%. Alternatively, failure to approve the reform in 2019 would likely trigger major instability in local markets and could crush hopes of a recovery. Monetary policy takes a back-seat: The Brazilian central bank meets this week and, once again, it should keep the policy rate on hold at 6.5%. More importantly, the forward guidance should shift from cautiously hawkish to firmly neutral. We expect the guidance to reinforce the data-dependent nature of future policy decisions and the greater policy flexibility required in light of heightened (domestic and external) uncertainties. But policymakers should also indicate the balance of risks for inflation have become more balanced and is no longer “asymmetric221;, skewed to the upside. This shift would be consistent with the lower-than-expected inflation seen since the Bank’s last meeting. Over the past month, this has been helped by lower electricity/fuel prices and consensus expectations for 2018 have dropped by 70bp, to 3.7% now. This is in line with our forecast of 3.8% and compares with the 4.5% target for the year. For 2019, our initial forecast is 3.7%, lower than the market consensus of 4.1%. The bank’s own inflation forecasts should also fall, especially for short-term horizons. Those forecasts should remain in line with the 2019-20 targets (4.25% and 4.0% respectively), even in the reference scenario, in which the policy rate remains unchanged at 6.5% in the policy-relevant horizon. In our view, as long as social security reforms remain on track for approval in 2019, the Brazilian Real should remain relatively well-behaved, and the central bank should keep the policy rate unchanged. Despite the rally in local bonds seen since October, the local curve still incorporates 125bp rate hikes next year, along with 200bp in 2020. If the social security reform fails to advance in Congress in a timely fashion, i.e. still no approval by the end of 3Q, local assets are bound to suffer, with USD/BRL likely to rise above 4.0, worsening inflation expectations and triggering a hawkish monetary policy shift, with the central bank possibly launching a gradual rate-hiking cycle. Alternatively, if the reform gets approved, USD/BRL is likely to consolidate in the 3.7-3.6 range, after initially overshooting below 3.5. In this scenario, the market might expect the central bank has room to re-launch the monetary easing cycle. In our view, rate cuts could be considered, at the end of 2019/early-2020, depending on the depth of the fiscal adjustment set in. A dovish monetary policy stance would also be consistent with Brazil’s ample spare capacity, high unemployment, fully-anchored inflation expectations, and the structural changes taking place in the local credit market, with a reduced presence of state-owned banks. Ultimately, a lasting fiscal policy adjustment could pave the way for monetary policy to stay expansionary for at least a few years, without risking turning the policy mix excessively expansionary. A suspenseful 2019: Will the fiscal reforms finally get approved? Politically, the transition period has been less fruitful than initially thought. Expectations that Congress would approve important legislation before the end of the year have, so far, not materialised. None of the legislative initiatives initially considered, such as the transfer of oil exploration rights, central bank independence or the social security reform proposed by President Temer, advanced much. Members of Congress have promoted initiatives that clash directly with president-elect Jair Bolsonaro’s pro-market agenda. This includes a bill to increase political interference in regulatory agencies, and that eases fiscal constraints for municipalities, along with other measures calling for tax forgiveness. Ineffective political coordination by the new administration, which takes office on 1 January, helps explain the disappointing results. This may reflect, among other things, a combination of unpreparedness and the tiny size of Bolsonaro’s party (PSL) in the current Congress. But it also could reflect bigger problems, such as a deficit of savvy political negotiators in his team and the challenges he will face in his goal to change the way the executive negotiates with Congress. On a positive note, the senior-level cabinet appointments announced in recent weeks have been very well-received. Particularly encouraging has been the cohesive vision suggested by the economic team, helmed by Paulo Guedes as Economy Minister. This includes new heads for the central bank (Roberto Campos Neto), state-owned banks including BNDES, Caixa and Banco do Brasil and Petrobras. The reappointment of Mansueto de Almeida as head of the National Treasury is also a favourable development. The newly created roles of a Secretary for Privatization and a Secretary for Social Security are noteworthy new initiatives, highlighting the importance of the two areas for the incoming administration. Overall, we expect investors to remain narrowly focused on assessing Bolsonaro’s ability to approve his legislative agenda. Some of the near-term catalysts that could alter that assessment include political negotiations for the election of the presidencies of the Lower House and the Senate, along with the announcement of the new legislative agenda, especially whether Bolsonaro will support the approval of the social security reform already under debate in Congress. In particular, we suspect local assets would react well to the re-election of Rodrigo Maia to lead the Lower House, with Bolsonaro’s support, and to a political agreement to finish the vote on the social security reform proposed by President Temer.
loganair: Ian Cowie: I may be nuts but I like Latin American trust now by Ian Cowie: They say a drowning man will clutch at straws but this DIY investor was pathetically grateful to find one investment trust firmly in the blue when his screen was awash with red during the global markets sell-off on Monday. While the FTSE 100 index of Britain’s biggest businesses slipped to a six-month low and other benchmarks fared even worse, an unloved emerging markets fund I have been holding onto out of sheer contrariness lived up to its name and emerged from the day with its share price 5% higher. On looking more closely, I see that it has risen by 12% in the last month, having lost a similar amount over the last year, but is 59% up over the last three years, according to data from Numis Securities. Its name? Please don’t laugh but it’s BlackRock Latin American (BRLA). Like many investors, I had grown so used to bad news from Brazil — in which the trust has nearly two thirds of its assets invested — that I had sub-consciously stopped looking at this long-standing holding because it hurt to do so when everything else was going well. Now the tide has turned elsewhere, however temporarily, BRLA has taken a turn for the better. What’s going on? Perhaps counter-intuitively, politics can provide uplift for markets, as well as its more familiar depressing influences. It seems Brazil has woken up to the risk of turning into another Venezuela and the fifth-biggest electorate on earth has voted for a right-wing populist. Jair Bolsonaro, a former army captain who talks nostalgically about Brazil’s military rule between 1964 and 1985, has a long way to go before gaining power but the prospect of socialism, higher taxes and confiscation, appears to be receding. Bolsonaro’s success in the first ballot was enough to boost Brazilian share prices and provide a bright feature amid the gloom this week. More importantly, his pledges to cut tax, privatise state-owned businesses and reform ruinously unaffordable state pensions might form the basis for long-term economic recovery. Brazilians don’t need to be interested in political theory to see the practical consequences of the alternative ideology. Millions of Venezuelans are fleeing from the latest example of how socialists set out to create a paradise on earth but end up building an open-air prison where dissenters disappear. But international investors should not really be surprised by the ‘Bolsonaro bump’. After all, the election of another right-wing populist in North America in November, 2016, was followed by a 50% increase in the Dow Jones index of US blue chip shares. To trump that, so to speak, most economists and metropolitan media pundits — like me — are still sucking their teeth and warning that Bolsonaro will struggle to deliver medium to long-term economic growth. That may explain why BlackRock Latin American is trading at a 16% discount to net asset value (NAV). But I cannot resist pointing out we have heard such doom-saying before. While none of us has a crystal ball, we can all take comfort from experts’ inability to predict the future in the past. Pole position in that fiercely-contested field of failure must go to the Nobel prize-winning economist Paul Krugman. Immediately after Donald Trump’s election victory, Krugman sagely observed in the New York Times that: ‘If the question is when markets will recover, a first-pass answer is never.’ Since then the economist has been telling anyone who will listen that the president and his tax cuts — the biggest in 30 years — have nothing to do with the economy or share prices. Maybe so, but the recovery that never was seems to be going very well. No wonder City traders define an economist as a man who knows 69 different ways to make love but doesn’t know any women. So this DIY investor intends to hang on to his stake in Brazil — even if naysayers claim I’m nuts.
loganair: Brazil Is Settling In to a Period of Steady Economic Growth, and Many Industries Are Ripe for Private Equity Investments. Investors Need to Understand the Market and Apply the Right Strategies. As Brazil's economy takes important steps toward stabilization after a major boom and a two-year correction, it is becoming attractive to investors that want to diversify into emerging markets. The continuing recovery, probusiness reforms, and growth in key industries are combining to create a clear opportunity for investors. These key findings are presented by The Boston Consulting Group (BCG) in its report Private Equity Strategies for Brazil's New Economic Reality, which is being released today. Brazil's economy is more mature than those of other emerging markets. About one-third of Latin America's population lives in Brazil, yet the country attracted nearly half of all PE investments in the region from 2008 through 2015. Compared with developed markets such as the US, there is still significant room for growth. "That combination of factors puts Brazil in the sweet spot for companies willing to invest in emerging economies," says Heitor Carrera, a BCG partner and coauthor of the report. "Over the next decade, the country will offer a rare opportunity to both global firms that want to add emerging markets to their portfolios and local firms in Brazil that want to step up their investments there." Steady Growth and an Increasingly Friendly Business Climate: Most economists predict that, despite some volatility in the first half of 2017, Brazil's GDP will settle into a period of slower but steadier growth--about 1.8% a year through 2021, which is faster than that of the G7 countries. In addition, Brazil's government has introduced a series of economic reforms--such as reducing the paperwork required to file some taxes or start a new company--aimed at promoting a more business-friendly environment. Although the recent economic correction hit some industrial sectors hard, many others--particularly in consumer segments such as food and health--continued to expand at double-digit rates, and that growth will likely continue. These industries are now prime candidates for the kind of value creation strategies that investors can apply. "Brazil has given investors a wild ride over the past decade," says Carrera, "but as it now enters a period of slower growth, it presents investors with both challenges and strong opportunities. Investors that understand the local market, and adopt a long-term view will set themselves up to take advantage."
loganair: Is the tide beginning to turn for emerging markets? by Daniel Grote. Investors are pulling out of emerging markets in record numbers after a grim two years, but some argue now is the time to buy. If you believe the adage that things need to get worse before they can get better, then emerging markets are certainly fulfilling the first half of that maxim. Emerging markets have been a grim place to be since the tide turned firmly against them in 2013. After a strong rally after the financial crash, they have endured a torrid two years against the backdrop of the US winding down quantitative easing, or dollar printing, and China's economic growth slowing. And there have been few signs of a turnaround on the horizon. The prospect of the US raising interest rates, and the hit emerging markets would take from the hike, has weighed on investors' minds throughout the year. Even the US's failure to raise rates last month, surprising some commentators, did not provide any respite. Investors instead fretted over the reasons for the Federal Reserve's lack of action, fearing prospects for global growth were even worse than had been thought. Again, emerging markets were the big losers. Investors have voted with their feet. Emerging markets are set to suffer a net outflow of capital this year for the first time since the financial crisis, according to the Institute of International Finance. But just as it appeared things could not get any worse for emerging markets, sentiment appears to have turned. They led the running last week, and continued their rebound in the last few days. Contrarian 'buy' Now analysts at investment bank Morgan Stanley, who are not shy of making big market calls, are proclaiming this is the time to buy emerging markets and commodity-related stocks. 'The heavy consensus positioning to favour developed markets over emerging markets is likely to be challenged in the fourth quarter as better China news flow improves sentiment towards emerging markets and commodities,' they said. 'We recommend investors raise their exposure to emerging markets / commodities given the combination of very low sentiment, attractive relative valuations and a likely inflection in macro sentiment.' A crucial flank of their argument is that China, the main driver of emerging market – and wider global market – falls during August's downturn, should provide investors with some good news throughout the rest of the year. 'The real kicker for equity markets is likely to be signs that China's economic activity is not as bad as feared (given this is the epicentre of investor concerns about the global economy),' they said. 'In fact, our economists believe macro momentum in the country could actually start to show some improvement in the coming months in response to a faster pace of new policy initiatives.' Just as importantly, they don't expect investors to be subject to the same level of policy uncertainty from China that proved to be the undoing of markets in August. Investors were thrown in a panic when China devalued its currency, reported weaker growth figures and fought rampant stock market volatility, culminating in the spectacular falls seen on 'Black Monday'. China's policy mess: Stephanie Flanders, former BBC economics editor, who is now chief market strategist at fund group JPMorgan Asset Management, believes it was the 'cack-handed' manner in which the Chinese authorities reacted, rather than the policy moves themselves, that worried investors. 'Did it suggest [the authorites] were not going to be able to handle the challenges China faces? I think that was what panicked people,' she told a conference in London yesterday. Morgan Stanley agreed that this uncertainty over policy 'had at least as big an impact on investor sentiment as the underlying economic data'. 'Going forward, the recent step-up in policy announcements from the government, coupled with less volatility in equity and foreign exchange markets and the forthcoming decision from the International Monetary Fund on the yuan's inclusion in the [special drawing rights basket of currencies] should hopefully allow for policy uncertainty to start to normalise,' they said. And the analysts also see encouraging signs on earnings from emerging markets companies. These have been in decline, but Morgan Stanley has pointed to what it believes is the trough in the emerging markets 'earnings revisions ratio' – the net number of analyst upgrades, expressed as a proportion of the number of forecasts – versus that for developed markets. If Morgan Stanley is right, an upturn in emerging markets could catch a lot of investors unaware. 'Any improvement in sentiment toward emerging markets is likely to have serious ramifications for investors given the extreme level of positioning we see across markets, whereby investors are underweight emerging markets and commodity-exposed areas,' they said. Consensus could be caught out: Professional investors are just as likely to be caught out. The analysts point to the strong performance of UK funds – where 88% have outperformed over the last 12 months – as evidence they have largely shunned the UK market's heavy weighting towards emerging markets-sensitive commodity stocks, which have acted as a drag on the FTSE 100. Emerging markets funds have meanwhile suffered 14 consecutive weeks of outflows, and the analysts argued that 10 weeks of outflows was usually a contrarian 'buy' signal. Emily Whiting, emerging markets portfolio manager at JPMorgan Asset Management, argued a reversal of these flows could by itself help to revive the sector. 'Flows can drive emerging markets as much as fundamentals,' she said. 'Investors are underweight emerging markets more than ever since the financial crisis.' She argued that a reversal of outflows was a more likely immediate catalyst for improving returns than improving earnings. 'You're more likely to see that than earnings picking up,' she said. 'It [wouldn't] mean [investors] like emerging markets, they just don't want to be as underweight as they are at the moment.' And she claimed a hike to US interest rates, long feared for the impact it could have on emerging markets, would help to remove uncertainty. 'We just want them to raise – it's the worst kept secret ever,' she said. 'It's worrying investors and causing them to sell out.' 'It is built in [to prices] and understood. We just want them to raise it, everyone will realise the world hasn't ended, and we'll carry on.'
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