Emerging Market Q1 Review

on Tuesday, 23 April 2013. Posted in ,
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BRIEF THOUGHTS AROUND THE MARKETS

upward arrow & numberWe still remember the emerging markets boom back before the financial crisis when 20-40% returns per annum were de rigueur.   It isn’t like that anymore, nor if you consider it, should it be.

Still there are opportunities out and there and we have a quick scan to consider first quarter results and pass a quick opinion on the outlook.

Here are a few of the more interesting markets.

China

After a strong run starting from December and continuing all the way in February the market ran out of steam and ended down 1.5% on the quarter.  Concerns about new capital gains taxes in particular hurt the property sector.  The government however continues to institute further reforms, including allowing resident foreigners to buy stock funds.  The market remains relatively cheap with the wind of government reform and support at its back, so we continue to think China is one of the better emerging market buys around.

No ETF available but we have offshore funds that access the Shanghai market.

India

After a very strong 2012 the first quarter was a disappointment for the Indian market down 3% against the tide of other markets, as is sometimes the case.  India remains a market of potential although political and a lack of reform the main restraint on the economy and stock market.  Inflation due to lack of infrastructure continues to cause concern.   The market is not particularly cheap but would become more interesting if the BSE Sensex were to get back to 16,000 points.

PowerShares India Portfolio (PIN)

Russia

Unlike developed markets, the first quarter wasn’t kind to the Russian stock market down almost 6% and continuing to trend down now.  The Russian market is cheap on a PE ratio basis, usually listed at around  6 or 7 on most market services, but two significant clouds loom.  Russian politics seems to be regressing and Putin wouldn’t be described as a “reformer of great integrity” by most observers.  The Russian economy and stock market (not to mention government tax income) remains heavily dependent on energy, particularly gas, for exports and income.  Falling oil and gas prices due to the boom in supply in the United States loom as a significant speed bump.

Market Vector Russia ETF Trust (RSX)

http://www.vaneck.com/funds/RSX.aspx

Brazil

A disappointing quarter for Brazil down 3% in foreign currency terms.  The Prime Minister Rouseff is proving herself a reformer of the political system, putting much needed spotlight on corruption issues.  Heavy handed government policy around oil finds, a stifling bureaucracy and monetary policy that is a little too loose for their inflation rate is a worrying factor.  The market is well off its highs (down 35% off its post crisis high) and the country remains full of potential but it would be more encouraging if some of the trends, particularly macroeconomic policy were better from Brazil.  Still, the World Cup is coming soon, so global focus, currently diverted elsewhere might return.  We think worth considering for a longer term investor if the market falls another 5-10% which would bring the market back to levels last seen in early 2009.

iShares MSCI Brazil Index (EWZ)

http://us.ishares.com/product_info/fund/overview/EWZ.htm?fundSearch=true&qt=EWZ

Korea

Ended the quarter back almost where it started but has since fallen significantly since then.  Tensions on the Korean isthmus due to its irrational attention-seeking brother to the north have probably pushed the market down 5% and might be worth a look, particularly if further falls eventuate from an increase in the tantrum volumes.   The pattern of Kim tantrums and then quietness might be worth exploiting for those interested in a 5-10% easy gain from around 1875 points on the Kospi.

iShares MSCI South Korea Index Fund(EWY)

http://us.ishares.com/product_info/fund/overview/EWY.htm?fundSearch=true&qt=EWY

Singapore

It seems a little harsh to have little, rich, well-run Singapore in the emerging markets bucket, but we place it here due to the number of big South East Asian companies from its neighbours that choose to list on the Singapore exchange.   The first quarter was solid with a 2.6% increase although the trend appears to have been broken.  The market doesn’t appear to be that interesting on trend or valuation basis.

iShares MSCI Singapore Index Fund (EWS)

http://us.ishares.com/product_info/fund/overview/EWS.htm?fundSearch=true&qt=EWS

Thailand

A good quarter from Thailand with a very nice 10% gain.  Politics seems fairly serene these days with good sugar harvests.  We can’t help wondering how much longer the good trend can last though.

iShares MSCI Thailand Index Fund (THD)

http://us.ishares.com/product_info/fund/overview/THD.htm?fundSearch=true&qt=THD

Malaysia

Almost dead flat during the first quarter, although interestingly it’s pattern was the opposite of the rich world.  It was down in February to recover in March.  The forthcoming election may create instability so worth watching what proceeds.

iShares MSCI Malaysia Index Fund (EWM)

http://us.ishares.com/product_info/fund/overview/EWM.htm?fundSearch=true&qt=EWM

Philippines

One of the best performers around with a cracking pace of 19% in just the first quarter.  After a pause for break in April it has continued to bounce higher.  Good news, politically, seems to be coming out of the Philippines and confidence seems to be building. Usually these are not things associated with the Philippines, a country that has missed several Asian booms in the last 20 years, at long last seems to be joining the party.  A country of great potential seems to be starting to realize some, so worth a small investment since unclaimed potential is still the best description here.

iShares MSCI Philippines Investable (EPHE)

http://us.ishares.com/product_info/fund/overview/EPHE.htm?fundSearch=true&qt=EPHE

Indonesia

A 15% first quarter was  an excellent result for a market that has been one of the better performers over the last couple of years in South East Asia.  Still valuations are starting to become stretched and the market has reached ahead of the fundamentals.  Politics is very slow moving in Indonesia and reforms are more discussed than implemented, whilst infrastructure continues to languish.  Confidence still seems to exist, and that might be enough to sustain a continued rally, but we see better opportunities elsewhere at present.

iShares MSCI Indons Invstbl Mrkt Indx (EIDO)

http://us.ishares.com/product_info/fund/overview/EIDO.htm?fundSearch=true&qt=EIDO

 

Next Up: Bonds and Alternatives

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