Jpmorgan Global Emerging... Share Discussion Threads

[loganair] 24/3/2017 09:36

By Maike Currie of Fidelity:

Bull markets climb a wall of worry and blips along the way are normal. In equity markets, these types of corrections can in fact be quite healthy and a good time to scoop up investments at discounted prices.

Key reason to believe the party isn’t over: emerging markets. After Trump’s election there was a lot of angst about the future of emerging markets - largely because of two reasons: trade and tapering.

Many emerging markets are export driven economies reliant on global free trade. Many of these countries have built their wealth by supplying the huge appetite of the American consumer. Trump’s ‘Buy American’ rhetoric raised concerns over emerging markets vulnerability to American protectionism.

The other big concern centred on a stronger dollar. With rising rates and the tapering of ultra-loose monetary policy likely to lead to a strengthening of the American currency, emerging markets with dollar denominated debts or those dependent on commodities, looked particularly vulnerable.

But the opposite has played out. Since the Federal Reserve’s interest rate hike announcement, the US dollar has been weaker while the market has pressed the pause button on the merits of Trump’s reflationary promises.

What does this tell us? Well, crucially that the power of central banks in developed markets to drive up asset prices is fading and that emerging markets aren’t nearly as worried about tightening monetary policy in the developed world than the once were (remember the tantrum emerging markets threw in 2013 just at the mention of the word ‘taper’)? .

And here’s the rub: investors may be turning cautious, but they’re not shunning emerging markets, typically regarded as one of the most risky investment classes. In fact flows into emerging market funds are at their strongest on record, according to data from Morgan Stanley, while emerging market asset classes make up six of the 12 best performing asset classes so far this year.

Moreover, as Ayesha Akbar, a portfolio manager in Fidelity’s multi asset team, highlights there are also a number of longer term structural factors which favour these regions. In most emerging markets, people have seen rising living standards over the past 20 years, whereas in the developed world many have witnessed stagnation. This alienation with many feeling shutout from the so-called establishment, has been a key driver behind the rise of populist parties across the world, and indeed the election of Donald Trump.

Emerging markets can always make their economies more productive to boost growth but this solution is not always as readily available to developed economies. Not only is there less room for ‘catch-up growth’ but these types of reforms tend to be more politically difficult, with the potential to uproot the status quo.

Even the most traditional area of emerging market risk – politics – is now seen as less of a threat with countries like China and India making good progress in promoting a more stable economic and political backdrop. Compare this to the political clouds hanging over the developed world - Trump, Brexit, European elections and even a second Scottish Referendum.

As investors we like to think of the investment world as neatly split between ‘safe’ developed markets and ‘risky’ emerging markets - but perhaps now is the time to rethink this. Yes, Donald Trump remains an unknown quantity and this is why we have witnessed these recent market jitters. But if you take a more holistic and long term look at the world, and how it’s changing, it probably doesn’t matter that much.

[loganair] 16/2/2017 10:03

Templeton Emerging Markets’ Carlos Hardenberg and Liontrust’s Patrick Cadell outline whether emerging markets look safer in 2017 than previous years:

Emerging markets were the surprise package of 2016, struggling early on due to concerns over a potential slowdown in China before ending the year as one of the best performing sectors.

While the election of Donald Trump as US president has led to concerns that the sector will fall back this year, Carlos Hardenberg, manager of the Templeton Emerging Markets trust, says developing economies are now in general more defensive and less vulnerable than they have been at any time in the past.

Last year, the MSCI Emerging Markets index returned 32.61 per cent compared with 28.24 per cent from the MSCI World index – a proxy for developed markets.

Despite the turnaround in fortunes many remain concerned that the emerging markets are a risky proposition that caught a tailwind of rising commodity prices and developed market uncertainty.

However, Hardenberg says now is the time to buy into the emerging markets if previous market cycles are an indication to go by.

“If you study the history of the markets in most cases the biggest opportunity to invest is when currencies come under stress and are oversold and surely last year was one of those periods,” he said.

“Currencies in all emerging markets got sold down dramatically and markets overreacted in places like South Africa, Brazil, Russia and others.

“Yes there has been a period of recovery but nevertheless we are still seeing that on a purchasing power model we still see that there is value in these emerging marks.

“Some of the effects we have seen coming from the depreciation of local currencies and the economic adjustment as a reaction to a slowdown in the emerging markets there has been a good degree of import substitution and as a result of that the current accounts and the balances look much better than they used to.”

As a result, he says emerging markets are “more defensive and less vulnerable” than they have ever been.

The big argument against this, he says, is a rising US dollar, which increases the cost of dollar-denominated debt, however, the trust manager says this is less of a problem than it has been during previous crises.

“I think it’s a fair statement to say that even if the dollar appreciates further – and while it is not appreciating right now that is the general expectation – the threat on emerging market economies is mitigated by the fact that current account balances look so much better than they used to.”

As well as currency effects, he says higher earnings and lower debt have made companies much more attractive than in previous cycles.

“The one that is quite well flagged and understood by investors but can’t be underestimated is the impact of lower debt.

“The lower debt compared to the developed markets is not only very visible on the governments who have deleveraged but also on the corporate sector which has deleveraged significantly so the corporate balance sheets have a lot less in US dollar debt and they have used more local instruments, moved into more local currency debt which is a defensive measure.

“But overall the debt hasn’t really increased very much so they used the good years to deleverage as if they were expecting more difficult times ahead. In comparison the developed markets look much more vulnerable.”

As well as this, a rebound in commodity prices, which he says now sit at sustainable valuations have improved the prospects for the emerging markets.

Commodity prices spiked during the financial crisis in 2008 and began rising again through to 2011 but since then have fallen back and particularly eased in 2014 and 2015.

“If we look at some of the commodity prices – of course one of the reasons we had a crisis in the emerging markets was the very steep fall in commodity prices.

“The important part of the message is that we would expect much less volatility from here as there was this phase where commodity prices were brought up by speculators and hedge funds and other market participants to levels that were unsustainable.

“We see that right now the prices are much more reasonable and most importantly, these are prices where most emerging market companies are able to not only make a good margin but have a better ability to plan their business going forward.”

However, not all are convinced, and Liontrust global equity fund manager Patrick Cadell says Donald Trump in particular could pose a big threat to the emerging markets.

“There are a number of substantial risks that I do not believe are outwardly discounted in asset prices at the moment and there is a degree of investor complacency around these risks,” he said.

He cites Mexico which has borne the brunt of Donald Trump’s protectionist call and Turkey, which is currently suffering from an acute dollar shortage and has had to increase interest rates significantly to stabilise the FX market, as examples of countries already affected by the new US president.

One potential policy that could pose the biggest headache to emerging markets is the border adjustment tax.

“Now as protectionist, nationalistic, disruptive and outright insane as a border adjustment tax is, it’s not even a Donald Trump idea. The border adjustment tax idea belongs to Paul Ryan and the Republican congress. They see it as a way to fund Trump’s tax cuts and infrastructure spend.

“The impact would be – it would lead to a much stronger US dollar, it would lead to higher US interest rates and it would disadvantage countries and companies that export to the US.”

However, as the bill is currently going through congress and will likely to take several months to pass, there is also one area concerning him immediately – foreign direct investment (FDI)

“An area we are seeing an impact from Donald Trump in 2017 and it should be very worrying for investors is foreign direct investment.

“FDI at its simplest is a company building a plant or making an acquisition in a foreign country. It is however the lifeblood of emerging markets. It was responsible for the Asian tigers in the 1990s and the commodity boom of the 2000s.

“It is an incredibly important determinant of future GDP growth because FDI is how new manufacturing technologies and processes find their way to emerging markets. It boosts growth, it boosts productivity and it establishes the global supply chains that lead to future trade routes.

“As a result if it is removed or reduced the potential GDP growth of a number of countries diminishes and we are seeing FDI delayed or cancelled due to Donald Trump.

“We’ve seen companies postpone or cancel building plants in Mexico. We’re seeing electronic giants decide not to build their next electronics plant in Vietnam but actually in the USA. This is all very negative for emerging markets.”

[loganair] 10/2/2017 09:20

Why investors should stick with emerging markets:

Alex Wolf, senior emerging economist at Standard Life Investments, said the conditions which began the sector’s recovery last year are largely still intact.

This comes despite investment veterans warning that Mr Trump’s policies could wipe out the healthy returns which emerging markets enjoyed last year.

Yet across both commodity and manufacturing exporters, the upswing in activity has continued.

Emerging market fund group Ashmore posted a huge 94 per cent rise in pre-tax profits last year, despite seeing outflows of $700m (£558m).

Mr Wolf pointed out that manufacturing levels have improved in both India and across the ASEAN region last month, while Brazil’s trade and production data has been stronger than expected.

Yet he said the biggest piece of the emerging market equation, China, does not post reliable data until after the Chinese New Year.

“Although there is little to derail the EM recovery in the near term, the outlook remains highly uncertain,” he said, adding the factors that drove economic and market performance of the sector are now at risk of receding.

Flows into emerging markets had previously been boosted by stronger-than-expected Chinese demand, stronger external demand from the US and Europe, a stable dollar and interest rate environment, and a rebound in the global tech cycle.

“With industrial growth set to slow in China and the Fed continuing to hike rates, the supportive environment could begin to show cracks.”

At the moment, conditions in emerging markets look positive, but the Standard Life economist said the biggest question is sustainability.

“Potentially damaging US policies and an unclear Chinese industrial outlook leave emerging market growth hanging in the balance.”

He also said investors seldom predict the outcomes of geopolitical events, or draw the correct conclusion for asset price movements.

“This is not usually because of a lack of knowledge, but because they are attempting to delineate other people’s emotional reaction to an event that has not yet happened. “

He claimed the “only rational answer” is to focus on the long-term, pointing to Morningstar analysis which indicates that emerging markets have a positive yield and pay-out growth rate going forward.

[loganair] 06/2/2017 10:45

Atradius reveals the worlds top emerging markets:

Leading economists from trade credit insurer Atradius have released their assessment of the world’s top emerging markets of 2017.The new economic report reveals that India, Indonesia, Kenya, Côte d’Ivoire, Peru, Chile and Bulgaria are the global leading emerging market economies (EMEs) to watch. According to Atradius, these economies have been boosted by higher yields, reduced concern surrounding a hard landing of China’s GDP growth and a stabilisation of commodity prices.

Despite mounting uncertainty in 2017, these markets are predicted to weather global volatility due to strong domestically-driven growth, favourable demographics and supportive policy. Each market is dominated by young, growing populations, marked by an expanding middle class which boosts consumption and increases demand for investment and imports.Meanwhile, policymaking in these EMEs is largely improving and these markets generally enjoy stable political and institutional conditions. Indonesia, Peru, India and Côte d’Ivoire particularly are undertaking business-friendly reforms.

Best performing sectors:

Food: New long-term opportunities can be found in Bulgaria thanks to rising demand and a fragmented food market. Meanwhile, Kenya and Peru are also experiencing increasing demand for imported food and beverages.

Chemicals: India’s chemicals imports are growing substantially with a positive outlook as industrial activities grow. Higher industry and household demand is also rising in Bulgaria where 80 per cent of chemicals are imported.

Construction: Demand for infrastructure and investment growth are fuelling opportunities in all of the top EMEs largely thanks to a variety of large government infrastructure projects.

Retail: Good prospects and growth are forecast in the retail sector in Côte d’Ivoire, Chile and Peru. India anticipates a boost in rural incomes which will drive demand for consumer goods.

Richard Reynolds, head of regional brokered sales at Atradius, says, ‘The combination of strong consumption, investment-led GDP growth, increasing populations and improving policymaking offer attractive opportunities within these emerging market economies.

James Marchant, co-founder and CEO of Just Opened, says, ‘The experience economy is a global force, supported by a wealth of exciting and vibrant locations. It’s culturally curious consumers throughout the world who are drawn to locations such as these. With the EU amounting to 10% of the world’s population, it makes sense for British businesses to look beyond the continent for opportunities and new customers.

‘Asia for example has a huge population with a strong consumerist culture making it an ideal fit for many businesses, not just those working in the experience economy. Businesses therefore have a lot to gain by looking beyond the European horizon, particularly in terms of growth prospects.’

[loganair] 02/2/2017 10:59

JPM Emerging Markets Income is lower-risk and more defensively oriented than other emerging market equity funds.

Jason Broomer says: "The manager favours sustainable businesses that pay attractive yields or have strong dividend growth prospects. The fund is expected to be more resilient in falling markets."

[loganair] 25/11/2016 11:20

Carlos Hardenberg portfolio manager of Templeton Emerging Markets Investment Trust:

India's corporate governance has come a long way. The financial industry at large has generally recognised India as a model of good corporate governance in the emerging markets realm, and there has been a marked increase in transparency by many listed companies.

China is the other behemoth of emerging markets. Its economy is undergoing a dramatic transformation from investment- to consumption-driven growth, and that is going to have tremendous implications for every part of its economy.

China's economic transition, along with the incredible economic growth already experienced, has resulted in a much larger economy, and its influence today on even highly developed markets is immense.

Cautious on China:

In general today we are cautious on China and very selective in our stockpicking. We think the Chinese have the ability to manage their economy at this stage - they have a lot of resources and are managing their currency - but we are concerned about the banking sector in China.

We are worried about the transparency of the banks, as some of the accounting numbers we are getting are questionable. We are also concerned about the shadow banking system. We think the Chinese will be able to handle that process, but that the adjustment phase will take some time.

As we look back at the development of emerging markets over the past two decades, it's interesting too to consider the emerging markets of tomorrow.

We expect many of these to come from the current crop of frontier markets, many of which are growing rapidly and quickly assimilating the latest technological advances, particularly in the areas of mobile finance and e-commerce.

Generally, more youthful and growing populations mean consumer power is on the rise and the middle class is growing rapidly.

However, these smaller markets are being ignored in general by global emerging market investors, partially because of liquidity problems there and partly because they are misunderstood.

There is a lot of potential in Africa, but also in some of the smaller Asian countries.

Reasons to be upbeat:

Looking back over the past 21 years, we believe the welcoming of foreign capital and the trend towards privatisation have been key to the growth and development of emerging markets.

We are conscious and concerned that in some countries there is evidence that those trends could be reversed, but we remain upbeat today about the potential emerging markets offer, for three main reasons:

• Emerging markets in general have been growing three to five times faster than developed countries. Many frontier markets have seen even higher growth.

• Emerging markets generally have greater foreign reserves than most developed countries.

• Emerging markets' debt-to-gross domestic product ratios are generally much lower than those in developed markets.

Put all these strengths together, and there is good reason to be optimistic about the future for emerging and frontier markets. We are confident their share of the global investable universe will continue to grow.

[loganair] 07/10/2016 09:17

EMERGING MARKET RESILIENCE

Objectively, EM economies are rapidly becoming the only 'normal' countries left on the planet, in the sense that they have regular business cycles, use conventional policies, have reasonable debt burdens, sensible asset price valuations and so forth.

Moreover, EM countries have recently demonstrated considerable resilience. They have just come through a hurricane of headwinds - the start of the Fed hike cycle, the US dollar rally, the taper tantrum and falling commodity prices - without a major pickup in defaults.

EM resilience is rooted in fundamentals that are quite simply much, much stronger than those in developed economies, in regard to debt levels, FX reserves, growth rates, demographics, the room to ease monetary policies and fiscal room.

EM economies are reforming far more than developed economies, especially in the last few years. In short, the conditions of vulnerability that make Fed policy changes such an important risk in developed economies are simply not present in EM.

EM asset prices have also become far less correlated with Fed fears. By contrast, sensitivity to Fed hikes in developed market bonds is not only higher but has been growing steadily since last year.

This relationship alone ought to be a clincher for those who still struggle with the Fed hike question. But if that is not enough, remember that EM bonds also pay 6.26 per cent yield for the same duration that in the US pays just 1.26 pe cent and which in Germany pays -0.51 per cent.

[loganair] 27/9/2016 16:42

Emerging markets recover, but now for the hard part by Michelle McGagh:

Emerging markets have been strong performers this year, but now earnings need to improve, say investment trust managers.

Emerging markets have only entered the first leg of a recovery and company earnings need to improve before a genuine turnaround can take hold.

Emerging markets have had a rocky few years but investments trusts focused on the sector are among the best performers of 2016. Shares in these trusts have risen 31% on average since the start of the year.

The outcome of the EU referendum in June provided a further boost to emerging market investments as the value of sterling fell, however, it is only just the start of the recovery.

Carlos Hardenberg, manager of the Templeton Emerging Markets investment trust, said the ‘pendulum was swinging back’ in favour or emerging markets. Shares in the trust are up 42.8% this year, making up all the ground lost in a torrid 2015. Hardenberg took control the fund from veteran emerging market manager Mark Mobius last September.

‘The market always over reacts when the general consensus turns negative,’ said Hardenberg. ‘Share prices are more volatile than underlying earnings. We are seeing industrial production, as a measure of recovery, increasing in emerging markets...if you go country by country, there is a healthy degree of orders.

‘GDP growth is slowly improving and over the next two years markets like Russia and Brazil will see the biggest relative improvements.’

Omar Negyal, manager of the JPMorgan Global Emerging Markets Income trust, targets income rather than capital growth in his fund and said the real recovery in emerging markets will have begun when company earnings stabilise.

‘What we are seeing in emerging markets is the first leg of recovery,’ he said.

‘China is stabilising and there is an improvement in trade balances in emerging markets. For the second leg [of recovery] to come through, earnings have to start to improve. We are at the start of that,' he said.

He said improved earnings would help the ‘rerating of high yield equities in the asset class’.

China has been the main problem for emerging markets, with slowing growth dragging the sector down.


Hardenberg holds 19% of his trust in the country. He said there were still concerns around housing and ‘over capacity in steel and cement that will have to be dealt with in future’.

‘The big negative for emerging markets is the overall impact of global uncertainty and demand and supply in commodity markets,’ said Hardenberg.

Former chief economist at the International Monetary Fund Ken Rogoff has also warned of the threat China poses to the global economy due to its high levels of debt. He said there was ‘no question’ that ‘China is the greatest risk’.

‘China has been the engine of global growth,’ he said. ‘China has been really important. But China is going through a big political revolution. And I think the economy is slowing down much more than the official figures show,’ he said.

However, the good news is that sentiment towards other emerging markets is becoming more positive and local emerging market currencies are ‘slowly recovery’ and companies are finally keeping ‘capital expenditure down and concentrating on cost management’, said Hardenberg.

Emerging companies in mid and small cap - there are more opportunities there,’ said Hardenberg, adding that many tech companies - of which he has been a fan - were ‘leap-frogging’ more established businesses.

In particular, Hardenberg said he looked for companies ‘that have sustainable business models in an area with a high barrier to entry’.

‘We are expecting that emerging markets will see a sideways development over the next 12 months and there is a clear risk from China...and there is some danger already priced in,’ he said.

Although Asia is the largest geographic weighting in his trust, Hardenberg said he did not ‘have exposure to Chinese banks or insurance companies’ because of their poor asset quality and concerns the companies were ‘hiding how they are restructuring’.

China is the concern for Negyal, whose trust has mounted a recovery almost as impressive as Templeton's this year, with the shares up 38.6%.

‘China is very important for emerging markets at a quarter of the asset class and for the rest of the emerging markets it is vital... because it drives the rest of the emerging markets via trade links,’ he said.

‘That’s commodity prices in Latin America or manufactured goods in the rest of Asia. There are very few emerging markets that are isolated from China. From an economic perspective, Latin America will benefit from stabilisation [in China].’

Also important for Negyal is for emerging markets ‘to re-enter growth territory’ to ensure companies can continue to pay dividends.

‘Emerging market dividends and earnings have been under pressure,’ he said. ‘The near term outlook for dividends is still a concern and it is something we want to be cautious about but in the mid and long-term growth opportunities can be seen as well,’ said Negyal.

[gateside] 23/9/2016 16:32

Good article. Where is it from?

[loganair] 23/9/2016 09:44

Is this turnaround time for emerging markets? by Graham Smith, Market Commentator:

It isn’t the picture we had at the beginning of this year. Back then, emerging markets were reeling from heightened concerns about China’s economy and currency as well as a plunging oil price. After several years of poor performance, emerging markets were certainly not at the top of investors’ shortlists.

How this summer has changed all that. A tide to lift all ships, borne of an increasingly sanguine view of US interest rates, better news out of China and a generally more stable performance from commodities, has manifested itself in a sizeable rally.

Data out last week showed Chinese industrial output increased at a 6.3% annual rate in August while retail sales rose by 10.6%. Not bad for an economy still in the throes of a protracted readjustment process.

Such things are important for the world’s commodity producing developing countries – from Brazil through South Africa to Russia – and arguably even a comfort to big energy consumers like India, that have no interest in a world where confidence has been shaken by too-low an oil price.

In fact, confidence may have been the biggest winner this summer. The world recovered from June’s Brexit vote seemingly none the worse off – though these are early days – and expectations about US interest rates seem to have receded from multiple rises this year to perhaps one or none.

Higher rates in the US are an anathema to emerging markets. If they lift the value of the US dollar, they also inflate the size of the dollar debts held by emerging market borrowers.

Not only that, they encourage global investors looking for higher quality and lower risk returns to allocate more funds to US dollar assets like Treasuries.

However, government bond markets are not what they used to be. With yields across great swathes of the bond universe negative and with prices falling in major markets like the US and Japan this summer, “safe” assets suddenly look less safe with unattractive income returns to boot.

The latest available data suggests the return to emerging markets is on, with sales of European funds investing in emerging markets reportedly rising in July to its highest since 2013.

Yet while the big picture today is of returning confidence and improved returns from formerly out-of-favour sectors like commodities, if ever there was an asset class suited to a bottom-up, stock-picking approach over the longer term, this has to be it.

Underdeveloped markets with growth potential attract entrepreneurs keen to shake up incumbents or create new markets with ideas drawn from the west.

Compared with the rest of the world, the principal asset emerging markets have on their side is their growth advantage.

It could also be that, in recent years, investors have paid a bit too much attention to US monetary policy. That was the case certainly in 2013, when the so-called “taper tantrum” saw billions of dollars withdrawn from emerging markets.

The last time US interest rates were rising though – in the period 2003 to 2006 – emerging markets were rising with them4. Admittedly, the world still had a seemingly relentless China growth story to go on back then. However, the implication is that, so long as rising interest rates coincide with healthy growth, they might not be quite as bad for emerging markets as our very recent experiences would suggest.

Emerging markets may have enjoyed a positive summer, yet you might not know it from their valuations alone. The nice surprise in these days of valuations tending to the high end of their normal ranges for developed markets, is that emerging markets look attractively valued, especially in view of their expected growth rates.

At the end of last month, the MSCI Emerging Markets Index traded at just 15 times the earnings of the companies it represents, and at a 25% discount to world markets generally. The valuation gap is more or less maintained when using forecast earnings – 12 times for emerging markets versus 16 times for the world.

So investors today can buy into the long-term growth emerging markets provide for less than the price of slower growth in the west, the trade-off being the higher risks associated with countries with lower credit ratings and the likelihood of volatile episodes to test the nerves. Whether or not China devalues its currency again remains a particular possible catalyst to volatility.

However, if the International Monetary Fund is right – it expects emerging markets to grow by about 4% to 5% every year for the next five years – then 2016 could turn out to have been an attractive entry point for long-term investors looking to supplement the growth profile of their portfolios.

[loganair] 16/5/2016 12:22

Are emerging markets really in a “sweet spot”?

Emerging markets were the greatest investment opportunity of the last decade, and arguably the most disappointing of the current one. The MSCI emerging markets index has now fallen in four out of the last five years, and dropped a thumping 14.92% in 2015.

This is likely to excite the attentions of investors who like to dive into burnt-out sectors before they fire back into life and the bargains have all gone. It has certainly excited my attention, as has the 15% rise in the FT Trustnet global emerging market sector in the last three months. Fund managers are also jumping up and down, no doubt hoping the spotlight will start shining on this out-of-favour sector again. BlackRock reckons emerging markets are in a “sweet spot”. Should you sink your teeth in?

Emerging market ETFs have attracted nearly $16bn this year to recoup 75% of their 2015 outflows, while short traders have been heading for the exits. Richard Turnill, global chief investment strategist at BlackRock, pins this on the weakening US dollar, a rebound in commodity prices and recovering Chinese economy. But he isn’t getting too excited, warning that emerging market valuations are no longer unambiguously cheap. Recent trends could reverse, Turnill adds, and a sustainable rebound would require evidence of structural reforms addressing excess debt, industrial overcapacity and low corporate profitability, particularly in China.

This is the year that is:

Other fund managers share his enthusiasm: Robin Geffen and James Dowey say that 2016 will be “remembered as the year you should have been buying emerging markets“. They warn that recent emerging market equities have seen several false dawns lately, with the sector surging at the start of 2015, only to be destroyed by the summer China crash. Today they favour China and Russia, and are steering clear of beleaguered Brazil.

Many of today’s optimists appear to be pinning their hopes on the latest bout of Chinese stimulus, brushing over structural problems such as massive debt, huge surplus capacity, a housing bubble and very shadowy banking system. None of these problems have been solved and it may take another crash to do it.

Emerging London stocks:

That said, a Chinese and emerging markets recovery would be welcome news for oil and commodity stocks. It would also boost struggling FTSE 100 companies such as spirits giant Diageo, fashionista Burberry Group, emerging markets fund manager Aberdeen Asset Management, and Asia-focused banks HSBC Holdings and Standard Chartered. All have been punished by the emerging markets downturn but may benefit from a revival.

Or you could try household goods giants Reckitt Benckiser Group and Unilever, which have shrugged off the downturn but may still cash in when emerging markets consumers are feeling richer again. There are signs of upward motion already, with Aberdeen up 26% in the last three months.

Emerging markets have been in a sweet spot before, so let’s hope analysts aren’t over-sugaring this one.

[loganair] 07/1/2016 15:40

by Daniel Grote - Turnaround for emerging markets?

Will 2016 prove the year emerging markets finally recover? Stock markets in the developing world have been in the doldrums for three years now, and they have been the worst major market in which to hold your money over the last five.

On the face of it, it’s difficult to see the signs of a recovery: the US has just begun raising interest rates, hiking the price of developing economies’ dollar debt and spurring investors to seek more secure returns in the world’s largest economy.

But then, they are very cheap. Emerging markets trade on a price-earnings ratio, using projected 2016 earnings, barely in double figures, well below other global markets.

‘Emerging market valuations – in terms of price-to-book ratios – are relatively depressed versus history,’ said Ross Teverson, manager of the Jupiter Global Emerging Marketsfund.

‘At a time when valuations have been at or around these levels, strong long-term returns have often been available to investors willing to look beyond short-term headwinds.’

Nick Price, manager of the Fidelity Emerging Markets fund, pointed to depressed currencies and the subdued oil price as crucial to the plight of the sector.

‘2015 has already exhibited a high degree of currency depreciation of most emerging market currencies versus the US dollar,’ he said.

‘To this end, weaker emerging market currencies actually provide a tailwind for emerging market exporters. They make products and services derived from emerging economies more cost competitive, making them attractive in the face of hopefully improving demand as the global economy continues to recover.’

Exporters could also continue to benefit from the boost to global growth from a continuing low oil price, even though some oil-producing developing economies will continue to suffer.

‘Falls in commodity prices have not been bad for everyone,’ he said. ‘Take India, for example. As a net commodity importer, both the economy and the household have benefited from the impact of lower price inflation as the prices of fuel and food have fallen.’

[loganair] 26/12/2015 12:41

30th November 2015 - Portfolio analysis by JP Morgan:

The trust's share price and net asset value underperformed the benchmark. South Africa and Korea were the key detractors from performance. In Korea, our positions gave back some performance having performed well year to date. From our viewpoint, the fundamentals have not changed and we continue to see relatively positive dividend stocks in a low payout market. Brazilian positions generated positive performance, notably in banks and insurance. This was helped by the Brazilian real, which rallied against the US dollar. The currency looks the cheapest of the major currencies in our universe and so we are tilted towards adding, rather than subtracting, capital from that market. Positive contributors included the longstanding underweight in India and our positions in Taiwan. We added to South Africa during the weak performance, funded by completing our sale of Radiant, the Taiwanese electronics backlight unit producer, due to our concerns over the long-term durability of its cash flow and dividend.

[loganair] 20/12/2015 10:53

Economists like Nouriel Roubini are warning that the emerging market economies still face a protected period of deleveraging and are vulnerable to adverse shifts in market sentiment.

"The great emerging market debt binge of 2010-14 is over and the deleveraging process will continue in 2016," Roubini says.

Among the emerging market economies, the BRICS – Brazil, Russia, Indonesia, China and South Africa – represented more than a quarter of the global economy in 2014, calculated on a purchasing power parity basis.

China alone accounted for 16 per cent of world gross domestic product, while Russia and Brazil accounted for about 3 per cent each.

"Reckoning with the aftermath of debt build-up – servicing the local and hard currency obligations amid more difficult financing conditions globally – will drag on growth, weaken currencies in the most affected countries and lead to debt/equity swaps, and scattered defaults."

Even in China, where the government has the capacity to rescue the economy from a sharp correction, the process of deleveraging has the potential to be a drag on growth, particularly if the Chinese authorities limit the depreciation of the yuan.

Economists say they might be constrained by fears of inflation, capital outflows, and the adverse effects of a lower exchange rate on the shift of resources from manufacturing to the services sector. They also might be sensitive to the effects of currency depreciation on American opinion in an election year.

Brazil and Russia have been pushed into deep recessions: Brazil by falling commodity prices, weak macroeconomic management, declining competitiveness, corporate corruption and political scandal; and Russia by the collapse in oil prices and Western sanctions. Neither are in a good position to cope with the consequences of rising US interest rates.

Indonesia and South Africa also are vulnerable because of low commodity prices and would be adversely affected by a reduction in the supply of foreign capital. South Africa, in particular, has been running large fiscal and current account deficits and has a rapidly rising public debt.

Roubini also believes Turkey and Malaysia could come under pressure.

"Even in our more benign scenario – no hard landing for China, stabilisation of commodity prices and smooth, gradual US Federal Reserve policy rate hikes – some emerging markets could still come under severe pressure, given macro imbalances, low policy credibility and political fragility," he says.

The outlook for emerging economies is growing bleaker as the collapse in commodity prices weighs heavily on their outlook. Emerging markets have further to fall yet, highlighting that they are no longer the engines of global economic growth that they were once thought to be.

[loganair] 04/12/2015 12:32

Prospects for Emerging Markets Aren’t as Bad as You’ve Heard:

It’s obvious that emerging markets are facing severe headwinds. 2015 will be the fifth consecutive year of slowing economic growth. The days of break-neck growth in China are gone for good. Global volatility — coupled with strength of the U.S. economy — is making investors retreat to the safety of the U.S. dollar. A direct result has been depreciation in emerging market currencies. Since mid-2014, against the U.S. dollar, the Brazilian Real is down 42%, the Russian Ruble 46%, the Malaysian Ringgit 26%, and the South African Rand 22%. 2015 will be the first year since the 1980s to see capital outflows from the emerging markets exceed capital inflows.

However, today’s events are not necessarily a good guide to longer-term trends. In analyzing the trajectory of emerging markets, it’s critical to look at the broader context in at least two ways.

First, look at developments in the global economy. While the U.S. does remain very robust, the prospects for Europe and Japan are modest at best. Softer prices for oil and other commodities are a big boon to China and India, which together account for almost 40% of the world’s population.

This means that, even in 2015, emerging markets will grow at twice the pace of developed markets. Even after factoring in currency depreciations, their share of the global economy continues to rise year after year. According to the IMF, in 2000 it stood at 21%. This year, it will be almost double — 40%. By 2020, it’ll be 44% and, by 2025, close to 50%. If you want growth, you have no choice but to engage with emerging markets.

The other big reason for longer-term optimism lies in the major structural changes underway in emerging markets.

The population is young. Africa is 10 years younger than the world average. India is nearly 20 years younger than Europe or Japan, and nearly 10 years younger than the U.S. This young population is becoming more literate, informed, ambitious, and entrepreneurial. It’s also more urban. By every measure, on every continent on earth (including sub-Saharan Africa), the quality of both governance and infrastructure is better than it was 10 years ago and getting better.

To be sure, not every emerging market will flourish. But in the aggregate, they will account for half or more of the world economy in ten years. And, they’ll still be growing at 2-3x the pace of the developed markets.

[loganair] 22/11/2015 18:53

After three years of disappointment, emerging markets are about to turn the corner, Goldman Sachs predicts.

As growth picks up and weaker currencies help alleviate economic imbalances, “2016 could be the year emerging market assets put in a bottom and start to find their feet,” strategists led by Kamakshya Trivedi wrote in a note Thursday.

“There is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s.”

Some countries are better positioned than others.

While South Africa, Colombia, Turkey and Malaysia still need to tackle their current-account imbalances, Russia, India and Poland are among nations that have improved enough for their assets to rally, according to Goldman Sachs.

The New York-based firm is joining a handful of investors who have become more upbeat about developing economies after their currencies fell to record lows and stocks trailed developed-market peers by 51 percentage points over the last three years.

Franklin Templeton has said the selloff has opened up buying opportunities not seen for decades.

Goldman Sachs predicted that developing countries will grow 4.9% next year, from an estimated 4.4% in 2015, marking the first acceleration since 2010.

While it is still below the long-term trend, the improvement can only help boost investor confidence given the current “widespread bearishness,” the analysts wrote.

“We would part ways with the extreme pessimism that we sometimes encounter about the long-term prospects for emerging market assets,” they said.

Goldman Sachs said the biggest risk is a “significant depreciation” of the yuan. A stronger dollar and slower growth in China may prompt policy makers to allow the currency to fall with a spillover effect rippling through emerging markets, the report said.

“In our view, the fallout from such a shift is the primary risk,” the analysts said.

[loganair] 07/10/2015 18:54

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.'

[davebowler] 28/8/2015 16:08

Westhouse;


Investment Funds - Idea - Switch to Utilico Emerging Markets*


In our view, deflationary risks in emerging markets are still high and at least in the short term there remains significant downside risk to Chinese equities. We would ignore the day-to-day movements of the Shanghai Composite Index, which has consistently seen annualised volatility above 20%. Within emerging markets, we recommend investors switch part of their exposure from JPMorgan Global Emerging Markets Income Trust (JEMI), trading at parity, into Utilico Emerging Markets* (UEM), trading at a 10% discount. Over the last one, three and five years UEM has outperformed JEMI on a NAV TR basis.

[my retirement fund] 22/8/2015 11:01

hxxp://www.fpictet.com/uploads/ViewfromtheDeskAugust2015.pdf

[tenapen] 18/8/2015 18:46

Im thinking that China's market will continue to crumble and JEMI to keep falling.

Ho Hum.

[hugepants] 12/8/2015 15:00

Seems like a decent point to start buying this mutt. Discount to NAV. Yield over 6%?

Correction: yield 5%

[loganair] 23/10/2014 09:36

FABIUS1 - Yes I did know, I´ve just been a little lazy as I already have a standing order set up with JP Morgan and over the years have just found it easy to move my monthly investment around the various trusts.

I don´t have a lot of spare cash a the end of the month JP Morgan minimum investment is £50 per trust while Aberdeen is a minimum of £100 per trust.

The top 30% of Aberdeen Latin America is made up entirely of Brazil and Mexico.

Equity wise the Aberdeen Latin America is around 90% Brazil and Mexico with all the other countries making up less than 10%.

I do like the fact that Aberdeen Latin America also have holdings in Bonds.

What I would like to see is a Global Investment Trust that also includes Chile, Peru, Vietnam and Burma. While minimising China/HK to no more than 15% with a good dollop of South Korea, with also the other BRICs, a few Taiwan, Mexico, Indonesia, Turkey and the Philippines. a total of 16 counties with maybe a 15% holding in bonds.

[fabius1] 23/10/2014 08:19

log - Latin America 'income' covered by Aberdeen (ALAI)and Blackrock (BRLA) if that helps but you probably already know that.