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JEMI

Jpmorgan Global Emerging Markets Income Trust Plc

128.00
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Share Name Share Symbol Market Type Share ISIN Share Description
Jpmorgan Global Emerging Markets Income Trust Plc LSE:JEMI London Ordinary Share GB00B5ZZY915 ORD 1P
  Price Change % Change Share Price Shares Traded Last Trade
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  0.00 0.0% 128.00 15,548 08:03:47
Bid Price Offer Price High Price Low Price Open Price
128.00 129.00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Trust,ex Ed,religious,charty -8.74 -20.30 -6.80 - 379.72
Last Trade Time Trade Type Trade Size Trade Price Currency
09:03:57 O 2,140 128.6112 GBX
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Jpmorgan Global Emerging... (JEMI) Latest News

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Jpmorgan Global Emerging... (JEMI) Top Chat Posts

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Posted at 13/7/2017 19:29 by loganair
Ian Cowie: I’m happy for Asia to climb ‘wall of worry’:

City cynics say the six most expensive words in the English language are: ‘It will be different this time.’ That’s worth recalling when this month marks the 20th anniversary of the 1997 Asian crisis, where a domino effect saw currencies collapse across the region and stock market shocks reverberate around the world.

For example, the Hang Seng Index in Hong Kong plunged 10% in one day that July and the S&P 500 index in New York slipped by 7% in a single trading session. Lest this seem a dreary tale about events far away and long ago, it’s wise to remember that China had not yet joined the World Trade Organisation back then but is now the second-biggest economy in the world, as measured by gross domestic product. In terms of purchasing power parity, China is already the largest economy in the world, according to the International Monetary Fund.

Coming down from the macro to the personal, like many investors who have diversified away from Brexit Britain and shrinking sterling, I have substantial exposure to Asia through Henderson Far East Income (HFEL) and Schroder Oriental Income (SOI) – two investment trusts yielding 5.4% and 3.5% respectively – plus JPMorgan Global Emerging Markets Income (JEMI), which yields 4%.

In addition to those attractive yields, all three have delivered decent total returns over the last five years since I began buying them; 76% at Henderson and 93% at Schroder with JPMorgan still somewhat under a cloud at 34%. The one-year figures are, respectively, 32%, 25% and 20%.

Then there’s my biggest single shareholding in the region, Baillie Gifford Shin Nippon (BGS), an investment trust specialising in Japanese smaller companies. This yields zip but has delivered total returns of 113% during the three years since I invested and 19% over the last year.

The bad news is that Asian economies are carrying bigger debt burdens now than they were in 1997. The good news is that less of it is denominated in dollars and most Asian countries enjoy bigger foreign reserve buffers today than 20 years ago.

Other significant differences across the decades include the increasing importance of domestic consumption, with the vast populations of China and India offering more potential for growth than anywhere else in the world, and less reliance on low added-value exports. This switch in emphasis is evident in the asset allocation of my Asian trusts.

For example, Henderson Far East Income and Schroder Oriental both feature Samsung Electronics – the South Korean giant and global rival to Apple in their top 10 holdings, alongside major stakes in – respectively –Bank of China and HSBC. JPMorgan Global Emerging Markets Income and Schroder Oriental both list Taiwan Semiconductor in their top 10.

Looking to the future, after four or five years of falling commodity prices and corporate earnings downgrades in the region, both trends have recently reversed and some analysts forecast double-digit earnings growth in 2018. True, we have heard similar talk before but the performance figures above speak for themselves and the dividends pay investors to be patient.

All things considered, I expect Asia’s bull market to continue to climb a wall of fear in the months ahead, rather than revisit the shocking plunge of July, 1997. History rarely repeats itself but, less comfortingly for those of us who are fully invested, it often rhymes.
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Posted at 14/6/2017 09:42 by loganair
Why It’s Time to be Overweight in Re-Emerging Markets - by Rob Bush:

In the romantic whirlwind of global investing, no lover, it seems, is more alternately courted and then spurned than the emerging markets (EM). At times, investors are besotted, showering the asset markets of developing nations with capital as their infatuation with higher yields and stronger growth blinds them to all faults. But, before we know it, there’s an indiscretion – a capital control here, a debt crisis there. The once beautiful prospect of a lifelong partnership dissolves as investors and markets part ways, in search of their next paramours.

However, here at Deutsche Asset Management, we believe that the time is ripe for investors to rekindle their relationship with emerging markets. At our most recent Chief Investment Office (CIO) day, we moved to an overweight on the region and, fortunately, we allowed our heads to rule our hearts. Here are the main reasons why we think EM should again warrant your affection:

Macro Stabilization – After a tough 2016 for one or two of the emerging markets, notably Brazil and Russia, we think that Gross domestic product (GDP) growth and commodity prices have stabilized. Indeed, when it comes to growth, China may even surprise on the upside with encouraging signs of improving industrial production, steady infrastructure spending, and a Yuan that has been remarkably stable since its jitters in the summer of 2015 and at the beginning of 2016.

Export Pick Up – Although our view is that many emerging economies are actually a little less reliant on net exports than may generally be assumed, we nevertheless see outbound trade growing faster than imports in a number of the larger exporters, including Korea, Taiwan, Thailand and Russia.

Earnings Growth – Our view is that earnings will likely grow at more than 10% over the course of the next year in the MSCI Emerging Markets Index, and that should help to drive our forecast for 1,000 in the benchmark by March 2018.

Discounted Valuations – We wouldn’t categorize emerging market valuations as distressed but rather as attractive relative to the US. Even after a strong start to 2017, the current Price-to-earnings (PE) ratio of MSCI EM is around 15.1 versus 22.2 for MSCI USA Index, a discount of more than 30%.

Monetary Policy – More emerging market central banks are loosening monetary policy than tightening. All things equal that ought to provide a boost to stocks by encouraging relatively underinvested local money to seek out riskier assets. Additionally, to the extent that lower rates in EM, coupled with a hiking The U.S. Federal Reserve (Fed), cause EM currencies to weaken that could provide a boost to corporate profitability. Furthermore, one of the classic risks that investors are concerned with in EM, that of too rapid a currency devaluation causing problems in meeting dollar liabilities, does not seem to have materialized post Trump’s election.

Furthermore, these reasons aside, there are two more that we have blogged on before that we think are worth reiterating.

The first is the surprisingly low volatility that emerging markets have exhibited over the last 16 years or so. Figure One shows the rolling one year volatility of the MSCI EM Hedged and USA equity indices. It certainly came as a surprise to us that the emerging markets index has actually been less risky than the US more than 75% of the time. We attribute this to the relatively low inter correlation of many of these markets. After all, the emerging market label includes a basket of some very disparate markets, which, though individually may be quite risky, apparently diversify well when pooled.

The other potentially appealing feature is the relatively low correlation that the emerging markets have exhibited to U.S. stocks over time. The average of the rolling one year correlations between these markets over the same period was 0.42 and the highest that it ever climbed to was 0.62 during the latter part of the financial crisis. This, don’t forget, at a time when correlations across asset classes generally were spiking and investors were clamoring for diversifiers.

So there you have it. Not perhaps, reasons enough to fall head over heels in love with emerging markets, but sufficient, we hope, to at least get your pulses racing.
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Posted at 02/6/2017 09:16 by loganair
Can emerging markets keep up the pace?

Emerging markets have dramatically upstaged developed markets over the past year, and Neptune’s emerging market range has outperformed across the board. Here, members of Neptune’s emerging market team discuss the outlook for the asset class.

Emerging markets have significantly outperformed developed markets over the past year, and had their strongest Q1 since 2012

The asset class nevertheless remains cheap relative to developed markets, and on an absolute basis

The earnings outlook for emerging markets has greatly improved, supported by improving corporate governance and political reform – though there is still work to be done

The Neptune Emerging Markets, Neptune India, Neptune Russia & Greater Russia and Neptune Latin America funds are all comfortably ahead of their benchmarks over one and three year periods

There have been a number of false dawns for emerging markets in recent years; hopes of an economic turnaround have too often been quickly snuffed out by commodity price drops or shifts in market sentiment. In our view, however, it is clear that emerging markets are in the early stages of a cyclical recovery.

This time last year, CEO and fund manager Robin Geffen started increasing his exposure to emerging markets across his global funds for the first time since 2013.

“People had completely written off emerging markets but that’s when I think things became interesting,” he said. “Valuations were low and remain so, but China was beginning to stabilise under more effective policy measures. The stabilisation of the Chinese economy was the bedrock of a complete turnaround in the opportunity set.”

“So far the move into emerging markets has been positive, but we think there is plenty of room for upside from here in a number of different areas. What has been especially pleasing has been the stellar performance of our emerging market range over this period. The Neptune Emerging Markets, Neptune India, Neptune Latin America and Neptune Russia & Greater Russia funds are all well ahead of their benchmarks over the past year, and over three years as well.”

Having languished under a deflationary environment, slower global growth and weak PMIs from their key importers, emerging markets rebounded last year as these trends began to reverse. Now we are seeing the effect of these headwinds turning into tailwinds. Emerging market equities have just had their strongest first quarter since 2012, PMIs have been increasingly strong and growth prospects are improving. Over the past 12 months, the MSCI Emerging Markets Index has returned 44.2%, compared to 30.4% from the MSCI World Index.

Ewan Thompson, manager of the top performing Neptune Emerging Markets Fund, rotated his portfolio’s bias significantly in the wake of a changing economic climate last year.

“The conditions which suited a quality-biased fund are now changing rapidly, which just goes to show how flexible you need to be when it comes to emerging markets. Having been firmly focused on defensive, domestic-driven stocks up until 2015, we rotated towards value last year. To us the backdrop is ideal for cyclicals; stabilising and increasing global growth, a Chinese ‘hard-landing’ off the table and commodity price rises driving inflation.”

The Neptune Emerging Market Fund sits in the top decile of the IA Global Emerging Markets sector over one and three year periods, having returned 50.7% and 54.3% respectively. It is also comfortably ahead of the MSCI Emerging Market benchmark over this period.

The valuation springboard:

More broadly, despite the fact that earnings growth in emerging markets is forecast for 17-18% over the next year, Ewan notes that valuations remain at around the same level they were at last year.

“With earnings upgrades coming through, we expect to see a rerating in equity markets. Emerging markets are still trading at a significant discount of around 30% to developed markets and to us this makes them look very good value indeed. The scale of the opportunity should not be underestimated by investors. Given the depth that valuations sunk to thanks to such a protracted period of underperformance, there is plenty of spring in the market. In our view, there is still plenty of upside from here.”

An inflection point in earnings?

Emerging market businesses were awkwardly positioned for a slowdown in global growth in 2010; they had binged on capacity expansion and were suddenly faced with an excess capacity hangover. Now, thanks to a broad capacity cutting program – particularly in the commodities sector – prices are stabilising. Chinese initiatives to steer the economy away from a ‘hard-landing’ by supporting the housing market have also increased demand for raw materials, iron ore in particular. This increase in stability, combined with strong earnings growth data, leaves emerging market stockpickers with an interesting opportunity set.

Neptune India Fund manager Kunal Desai has been capitalising on this dynamic in India.

“We have seen big moves across the emerging markets but the key to these returns becoming sustainable is the earnings recovery story, something we’ve been talking about in India in particular for a long time,” he said. “We are at an inflection point, where you are seeing demand picking up, using up this excess capacity, whilst companies are continuing to show balance sheet restraint. That’s the real cash flow sweet spot.”

The Indian stockmarket, led by Narendra Modi’s reform agenda, has performed extremely well in recent years. The Neptune India Fund has managed to significantly outperform with a lower volatility, returning 88.3% over a three year period. Kunal believes certain parts of the market, particularly a number of large caps, are now fully valued, but sees plenty of room for upside in domestically focused mid-cap stocks.

Learning from the past

While the revival of emerging markets is certainly good news for active investors, this is not merely a valuation anomaly play. Five long years of low growth have forced these economies to employ longer-term strategic initiatives to improve their business climates.

“You are seeing better corporate governance, the reducing of current account deficits and government reform programs across the board,” said Ewan. “The key overweights in the emerging market funds are in the economies that are pursuing pro-reform agendas, from Modi’s modernisation of India to Russia’s commitment to becoming a top 20 World Bank “Doing Business” economy by 2020.”

The Neptune Russia & Greater Russia Fund continues to benefit from its significant exposure to ‘New Russia’, in contrast to the energy and materials biases of the benchmark. This has contributed to the Fund’s significant outperformance versus the MSCI Russia Large Cap Index over a one and three year period.

While the Fund is less exposed to oil than the wider benchmark, the stabilisation of the oil price since the lows of early 2016 has been a big driver of the market over the past year. The current oil price is at something of a Goldilocks level for Russia. The rally through 2016 has reduced the stress on the budget, and the stronger ruble has helped anchor inflation, which should allow the Central Bank to continue to lower rates. We believe there is much more room for rates to come down in Russia than consensus, which in turn will boost economic growth above expectations. However, the government is very aware of the need to diversify the economy away from natural resources, and the oil price shock will help to drive reforms, which will again stimulate stronger economic growth in the medium term.

As always, challenges remain:

While the long-term growth prospects for emerging markets are attractive, the nature of the asset class means that investors always need to be wary of downside risks. Corporate governance and political reform have been a bright spot in emerging markets of late, but one area with less positive newsflow in recent days has been Brazil.

Thomas Smith, manager of the Neptune Latin America Fund, acknowledges that a potential lawsuit against President Michel Temer is a setback, but says it is too early to tell what impact it will have beyond the immediate short term, and remains open to potential buying opportunities.

“The move in the market after the news broke suggests investors are pricing in zero chance of further reforms. While these allegations are likely to delay the reform agenda, it remains a key priority for Temer, and we believe this will be the case for the new government should Temer leave,” said Thomas.

“Political reform is widespread across Brazil and Argentina and both are better placed to withstand short term political turmoil than they have been in recent years – the fundamentals in Brazil are considerably stronger than during the 2015/16 sell-off. Inflation has been falling fast and consistently, external accounts are in great shape (12-month rolling trade surplus is the largest on record), the global scenario is more supportive, companies are less leveraged, the banking system is solid, and economic activity is no longer in free fall.”

“Finally, the Ministry of Finance and the Central Bank are led by very capable, seasoned technocrats that have a strong sense of public responsibility and are not likely to immediately leave the government if Temer falls. The growth prospects for Latin America are very encouraging, but as with any emerging economy you have to be cognisant of the potential for short-term blips, that is why we focus on downside protection by maintaining a diversified portfolio.”

Like all of the funds in Neptune’s emerging market range, the Neptune Latin America Fund has a significant focus on downside protection. The Fund protected Latin America investors from the worst of a difficult period between 2013 and early 2016, and yet has participated fully on the upside more recently. It is among the best performing Latin American focused funds in the IA Specialist sector over one, three and five years, and is ahead of the MSCI EM Latin America Index over all of these periods.

Geffen finished: “We have a fantastic team of emerging market specialists at Neptune, and I’m confident they can continue to deliver strong outperformance to our clients. Emerging markets have had a really difficult time over the past five years or so, but the tide is turning in their favour once again. Not for a number of years have we seen an improving growth story happening simultaneously in the emerging and developed worlds. It’s a great backdrop for an asset class that is attractively valued.”
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Posted at 10/2/2017 09:20 by loganair
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.
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Posted at 25/11/2016 11:20 by loganair
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.
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Posted at 07/10/2016 09:17 by loganair
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.
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Posted at 27/9/2016 16:42 by loganair
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.
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Posted at 23/9/2016 09:44 by loganair
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.
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Posted at 16/5/2016 12:22 by loganair
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.
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Posted at 07/1/2016 15:40 by loganair
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.’
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