Funds to pump more cash into Asian stocks in 2005
Singapore, January 14, 2005|18:25 IST
Money from funds is set to pour into Asian stocks for a third straight year in 2005, helped by a weaker US dollar and attractive valuations, funds industry experts say.
The big winners will be India, whose stock market hit life highs this month as the economy powers ahead, and smaller markets such as Thailand, Malaysia and Singapore.
“Based on the heady inflows into the India country funds we track, there are a lot of institutions out there that are still scrambling to increase their targeted exposure to Indian equities,” said managing director at Cambridge, Massachusetts-based Emerging Portfolio Fund Research, Brad Durham.
Mutual funds put a net $10.8 billion into Asia in the first 11 months of last year, compared with $12.9 billion in the whole of 2003 and a net outflow of $2.4 billion in 2002.
Durham expects another $2.5 billion of net inflows into Asia during December when equity markets fared well.
“Provided the US dollar weakens gradually as it has in the last couple of years and doesn''t collapse, which is probably a 20 per cent risk, then asset reflation plays and probably the whole region will perform well,” says fund manager at First State Investments, Alistair Thompson.
This has led Thompson to recently buy more of Hong Kong''s Hang Lung Group, an investment holding firm with interests from property investment and development to hotels and department stores, and Thailand''s Kasikornbank
First State, which has $5 billion invested in Asia-Pacific, has also bought Singapore Telecommunications, Malaysian mobile firm Maxis Communications and Hong Kong''s SmarTone Telecommunications to cash in on their growth and dividends.
Yang daku tau sih BLTA, RMBA juga buy back,.. tapi kayaknya management di indo lebih suka bagi deviden daripada buy back.
Tapi yang ngeri RI juga banyak tuh.. lihat aja dalam tahun 2005 yang belum genap 2 minggu sudah ada calon-calon yang bakalan isi : IIKP, CTRA, BNBR
The emerging market party
By Scott B MacDonald
Asia Times, March, 4 2005
In early 1997, emerging markets were hot - spreads were tight, most Asian and Latin American economies looked robust, and investors could not get enough of Argentine, Brazilian and Indonesian securities. There were proclamations that we were entering a new era of economic sustainability in which most developing economies had reached the take-off stage to self-sustaining growth. Then came the ill-fated Thai baht devaluation in July. The Asian contagion swept through Asian markets, spreading through Eastern and Central Europe and into Latin America. The International Monetary Fund (IMF) was brought in to rescue South Korea, Thailand and Indonesia. Russia eventually defaulted on its domestic debt and made a disastrous devaluation. It took several years to recover.
It is now 2005. We are observing emerging market bonds trading at very expensive levels. Billions of dollars are pouring into emerging market equities. Even Argentina is drawing interest as the country''s debt crisis is finally being settled and investors look over what is available to put money into (such as Telecom Argentina). Some are even proclaiming that this time the party will continue - that there is a new level of sustainability. But it is not that simple.
Emerging markets are not likely to experience any major meltdown in 2005. However, investors should be aware that while some countries have made significant progress and might be in a long-term take-off mode that implies sustainability of economic growth, a lot of other countries have not. Much of the current round of euphoria surrounding emerging markets comes from the commodities boom over the last two-three years. Higher prices for oil, natural gas, copper, nickel, gold and bauxite have stimulated economic growth and converted current account deficits into healthy surpluses in a wide range of countries.
Some countries have actually made a concerted effort to reduce debt - as with Russia. Others have made sweeping structural changes as in Turkey, China, India and Ukraine. Still others, like Mexico, have consolidated (at least for now) their position among industrialized countries. This overall positive trend is evident on the ratings front: in 2004 there were 30 upgrades and only 7 downgrades. The trend continued into 2005, with Russia, Mexico and India getting upgrades. There may be further ratings upgrades for Brazil, Chile, Indonesia, Panama (after launching an ambitious fiscal reform), and possibly Ukraine.
Despite the overall feel-good sentiment about emerging markets, the main concern is that the main force behind upgrades and tight spreads is cyclical factors. Countries like Brazil, the Philippines and Peru have high levels of debt and still have considerable need for further structural reforms. The fragile nature of emerging market economies was recently underscored by the IMF''s Stabilization and Reform in Latin America report. The key points of the report were that weak financial systems were contributing to major economic crises in Argentina, Ecuador and Uruguay, and without further reforms regional financial systems remain vulnerable to contagion. In particular, many Latin American governments need to enforce stricter accounting and auditing standards, strengthen financial regulatory agencies and update bankruptcy laws. The IMF also noted: “Debt burdens in many Latin American countries are above prudent levels and must be brought down.”
Although the IMF''s comments were directed at Latin America, other emerging markets have similar problems. China''s banking system remains a major challenge for the authorities, the Philippines is highly indebted and struggling to deal with a very messy fiscal situation, and many Middle Eastern and African countries continue to have considerable hurdles to implementing the right mix of economic reforms. In addition, there are political challenges - structural reforms are often unpopular, some national political elites continue to demonstrate a marked preference to loot their nations'' wealth rather than spread it out, and non-formal political actors (such as terrorists and insurgencies) threaten the formal political system (as in Nepal, Sri Lanka and the Philippines). There is still time to make changes, however, which will make an even better investment story as a result.
At some point, the emerging markets party will come to end, but probably not in 2005. As long as international economic growth remains moderate, interest rates go up at a measured pace and investors remain hungry for yield, emerging markets are likely to enjoy further ratings upgrades. Emerging market equities will still attract foreign investors. Commodity prices are not expected to fall radically in 2005 and are expected to moderate downward in 2006. Certainly a crash in the Chinese economy, a massive dislocation in the dollar, or a major geo-political crisis could bring the party to an abrupt end. However, there is no sign of these at this point. Consequently, emerging markets look attractive in the short term, but in the long term we will see a big difference between those countries that have stepped up and made real structural changes and those that talk about it, but have instead enjoyed the cyclical upturn in the global economy without thinking ahead to the next round. As always, selection of the right securities is critical.
Scott B MacDonald is a Senior Consultant at KWR International
(KWR International Inc, a New York-based consulting firm specializing in research, communications and business development services for the public and private sector, with a special emphasis on the Asia-Pacific region.)
Will the good times keep rolling for Southeast Asia''s stock markets?
China isn''t the only Asian nation attracting gobs of speculative cash from the West. In Southeast Asia and Korea, stock markets are the hot investment destinations. Most are up by double digits over the 12 months ended Mar. 21, led by Indonesia''s 55% and the Philippines'' 41%. Korea, a laggard in 2004, is up 8% since the beginning of the year. Fund managers think the good times will continue to roll, thanks to an investor-friendly mix of low inflation, high growth, and stronger currencies from Singapore to Seoul.
Even as U.S. interest rates rise, the chief question seems to be whether taking money off the table is worth the risk of missing out on further gains. “People are looking at how far most of these Asian markets have come in the past 18 months, and there is a temptation to take profits,” says investment guru Mark Mobius, who oversees Franklin Templeton Investments'' (BEN ) emerging markets portfolio. “But valuations are still unbelievably low, even after the run we''ve had.”
The fat returns have attracted an influx of hot money from the industrialized world that is adding fuel to the markets, pushing up local property prices – especially in Bangkok, Hong Kong, and Kuala Lumpur – and putting pressure on local currencies. The share of stocks owned by foreign investors is 50% in Korea and 25% to 40% across Southeast Asia. Net inflows from U.S. mutual funds into Asian equity markets, except mainland China, top $150 million a week and have been positive for a record 25 straight weeks. “Clearly there is a consensus among U.S. investors that Asia equities will outperform U.S. equities over the next few years,” says Markus Rosgen, Asia strategist for Smith Barney Citigroup (C ) in Hong Kong. A crucial factor buoying regional markets is the weak dollar. Investors get extra bang for the buck when their currencies are rising, as almost all are against the dollar.
Unlike the last big bull run from 1993 to 1996, when the Asian markets were driven to new heights by local investors, the current rally is largely foreign-driven. Malaysians, Thais, and Indonesians were so badly burned in the 1997-98 financial crisis that most still can''t be persuaded to leave the safety of their low-interest savings accounts. Bank deposits in Asia outside China and Japan were $2.7 trillion in December, up 11% for the year.
A VOLATILE SITUATION
Do they know something the foreigners don''t? One issue is whether the foreign inflow will ebb as U.S. rates rise – which they did for the seventh time in two years on Mar. 22. Higher U.S. rates for Treasuries and other bonds create a safe alternative to volatile emerging markets. No investor flight has happened yet, but hot money can leave the region as fast as it roars in. "All the talk about re-rating of Asian markets is mere rationalization by fund managers why they are continuing to invest in the region despite higher interest rates and slower global growth,“ says Michael Spencer, chief economist for Deutsche Bank (DB ) in Hong Kong.
For now foreign investors sense little danger of a stampede for the exits, in part because Southeast Asia and Korea''s corporate landscape has changed a lot since the financial crisis. Back then Asian bourses were dominated by highly leveraged conglomerates. But in recent years, Asia''s biggest companies – like Thailand''s Siam Cement – have repaired their balance sheets by cutting debt levels and costs.
There''s also a compelling macro story. Smarter corporate spending and strong consumer demand, coupled with bountiful exports, are powering solid gross domestic product growth throughout the region. ”Global investors are coming around to the view that Asia will have stronger growth than any other region in the world over the next few years," says Christopher Wood, chief Asia strategist for CLSA Asia-Pacific Markets. That will likely keep foreign investors in Asian markets – no matter how wary the local population might be.
Asia''s Emerging-Market Stock Drop Seen as Prelude to Rebound
April 4 (Bloomberg) – Emerging-market stocks in Asia avoided the worst of March''s global slump. Investors such as Michael Hughes predict prices will soon rebound and reach the highest levels since the region''s currency crisis in 1997.
“You still have the long-term growth story in Asia,'''' said Hughes, who oversees $35 billion as chief investment officer of Baring Asset Management Ltd. in London. Morgan Stanley Capital International''s Emerging Markets Asia Index reached its post- crisis peak in February 2000, and the region ”will beat this high, possibly this year,'''' he said.
The index lost 5.7 percent in March, less than similar benchmarks for Latin America and Eastern Europe. MSCI''s Emerging Markets Index, a global measure, dropped 7.3 percent on concern that rising interest rates will slow economic growth, hurting earnings of companies in developing economies.
Companies such as Indonesia''s PT Astra Agro Lestari, Indonesia''s biggest publicly traded agricultural company, and Lenovo Group Ltd., China''s largest maker of personal computers, helped the Asian index avoid a bigger decline.
Astra Agro jumped 26 percent in March, the largest advance among 440 stocks in the regional index. Lenovo rose 15 percent, the seventh-largest gain, as it raised $350 million through a stock sale to three buyout firms to help fund its purchase of International Business Machines Corp.''s PC business.
Last week, the benchmark gained 0.9 percent to 239.97, lagging behind a 1.1 percent advance in the global index. The MSCI Pacific Index, tracking companies in Australia, Hong Kong, Japan, Singapore and New Zealand, dropped 1.1 percent.
Asia''s emerging-market stocks will outperform those of other regions this year, said Elan Cohen, a fund manager in Singapore at JPMorgan Private Bank.
Economic growth of 7 percent to 8 percent in the region means local companies are becoming less dependent on overseas demand, said Cohen, whose firm manages $265 billion worldwide.
"The economic situation is much more stable than before,'''' said Ashutosh Sinha, who helps manage $8.5 billion in Asian equities at Morgan Stanley Investment Management in Singapore. "There isn''t any reason for any collapse.''''
The Asian index peaked in May 1996 at 380.55. In 1997, the benchmark plunged 49 percent as the Thai government allowed the baht to float, leading to a devaluation that caused currencies to tumble across the region. The slump was the biggest since calculations began in 1988.
Gains among technology stocks helped drive the benchmark to its February 2000 high of 278.96. The bursting of the so-called Internet bubble that began about that time sent the index to a 43 percent loss for the year.
Last month, the MSCI index reached its highest level since the bubble ended: 250.51 on March 1. Its subsequent retreat led to the first monthly loss since July. The benchmark ended March 15 percent below its 2000 peak.
Producers of so-called consumer staples, including food, beverages and tobacco, were the only one of 10 industry groups in the index to rise. Their MSCI measure gained 1.8 percent.
Indonesia''s PT HM Sampoerna, the country''s third-biggest cigarette company, and PT Indofood Sukses Makmur, the world''s biggest instant-noodle maker, added more than 20 percent along with Astra Agro. Altria Group Inc.''s Philip Morris unit made a $5.1 billion bid for Sampoerna on March 14.
Investors pulled $218 million out of funds invested in Asia excluding Japan in the week ended March 30, according to data compiled by EmergingPortfolio.com Fund Research, a Cambridge, Massachusetts-based firm that tracks fund flows.
Global emerging-market funds fared worse, as investors withdrew $1.24 billion amid concern that rising interest rates would hurt demand in the U.S., the world''s biggest economy. The Federal Reserve said last month that price pressures had grown, spurring concern that the pace of rate increases would quicken.
“Emerging markets are still fundamentally sound,'''' said Brad Durham, managing director of the research firm. The retreat is ”a temporary phenomenon,'''' he said.
Investors such as Arindam Bhattacharjee used the decline in Asian markets to buy stocks that they viewed as relatively cheap, including South Korea''s Samsung Electronics Co., the world''s second-largest maker of computer chips.
"Valuations are reasonable,'''' said Bhattacharjee, who helps manage $13 billion at Emerging Markets Management LLC in Arlington, Virginia.
Shares of Samsung Electronics, have risen 11 percent this year, beating the 8.1 percent gain by South Korea''s Kospi index. The stock trades at 9.4 times estimated earnings, based on the average of analyst forecasts compiled by Thomson Financial.
Lot of Growth
The ratio for the MSCI Asian emerging-market index is 11 times profit estimates, in between the Latin American index''s 9.7 times and the European benchmark''s 14 times.
Whether the Asian measure can keep beating its counterparts as it did in March may depend on the performance of technology companies such as Samsung. They account for 29 percent of the regional index''s value, more than any other industry group, according to data compiled by Bloomberg.
The percentage exceeds the combined 18 percent weight of energy companies and raw-material producers, among the year''s best performers as commodity prices climbed to records. These groups amount to 45 percent of Eastern Europe''s index and 42 percent of Latin America''s.
Technology stocks have risen in emerging markets this year, as the MSCI Emerging Markets industry index climbed 5.2 percent. The turnaround may help the Asian index recover from two years of underperformance against both Latin America and Europe.
Investors seeking higher returns may help drive the index past the 2000 high, said Baring''s Hughes. Trading has increased already, as 956 billion shares of the index''s members changed hands last year, more than twice the 410 billion of 1997.
"We''ve seen a lot of growth in Asia,'''' Emerging Markets Management''s Bhattacharjee said. "We don''t see significant pressure on interest rates.''''
World Officials to Confront Economic Woes
Saturday April 16, 6:50 am ET
By Martin Crutsinger, AP Economics Writer
World Officials to Confront Soaring Oil Prices, Plunging U.S. Stock Market at White House Meeting
WASHINGTON (AP) – The Bush administration, already concerned about the impact soaring oil prices will have on the economy, now has to be worried as well about a plunging stock market.
Oil and jittery financial markets were certain to be top discussion topics on Saturday as Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan serve as hosts for a meeting of finance officials from the world''s seven richest industrial countries.
On Friday, Wall Street suffered its worst single day loss in nearly two years with the Dow Jones industrial average plunging 191.24 points, its third straight triple-digit decline – something that hasn''t happened since January 2003.
The sell-off was blamed on increasing worries that the U.S. economy – the locomotive for the global economy – could be entering a “soft patch” that could be worse than last year''s spring and summer slowdown. Those also occurred after gasoline and other energy prices skyrocketed.
President Bush has been prodding Congress to pass an energy bill that would allow exploration of the Arctic National Wildlife Refuge to provide greater supplies in the United States. Other G-7 nations are expected to discuss their efforts to boost conservation.
In addition to the threat that surging oil prices posed to the global economy, the G-7 officials were also expected to talk about threats to global growth posed by America''s huge trade deficit and the inability of Japan and many countries in Europe to boost domestic growth.
Another prime debating topic will be competing plans being put forward by the United States, Britain and France to reduce the debt burden held by the world''s poorest countries. Officials hope to make progress in resolving differences on this issue but have said it is likely that an agreement will not be reached until early July in Scotland, where Bush and other leaders of the seven wealthy countries along with Russia will hold their annual economic summit.
The G-7 countries are the United States, Japan, Germany, France, Britain, Italy and Canada.
Their talks Saturday are in advance of weekend meetings of the 184-nation International Monetary Fund and its sister lending institution, the World Bank.
Investors add $2.93 bln in emerging market funds
Reuters, Fri Feb 3, 2006 5:05 PM ET
NEW YORK, Feb 3 (Reuters) - Investors poured money into emerging market equity funds at the second-fastest weekly rate in a decade, and investments so far this year are more than half of that for all of 2005, a research firm said on Friday.
Investors added $2.93 billion to emerging market equity funds in the week ended Feb. 1, less than the record $3.22 billion that was invested in the week ended Jan. 11, said Emerging Portfolio Fund Research of Cambridge, Massachusetts.
In the first five weeks of this year, emerging market funds have pulled in $11.41 billion, or more than half of last year''s record $20.3 billion, the company said.
Investors made net contributions of $6.1 billion to equity funds during the week, while so far this year these funds have received net inflows of $16.3 billion. Bond funds received net contributions of $206.1 million, the company said.
Japan equity funds received inflows again after breaking a 27-week streak of net inflows the previous week, and have now received $1.13 billion so far this year.
U.S. equity funds took in $1.29 billion, including $1.27 billion to the iShares Russell 2000 Index Fund, which added 17 percent to this fund''s total assets. Another $1 billion flowed into a small-cap and a real estate index fund.