Emerging mkts post record weekly investment inflows
New York, February 11, 2006
Emerging markets funds received record net inflows in the week ending February 8, with $3.3 billion moving to equities and $851.8 million pouring into bonds, Emerging Portfolio Fund Research EPFR said on Friday.
Demand for emerging equity funds was the largest in dollar terms since EPFR began collecting such data in 1995. All regions had a strong performance, with record inflows to Asia ($1.5 billion) and China ($304 million).
Equity funds in the BRIC nations – Brazil, Russia, India and China – also received a net $376 million, a record since EPFR began tracking these funds separately in October 2005.
Bond funds attracted a record $851.8 million in fresh money, specially from institutional investors.
Three funds open only to institutional investors – two managed by Ashmore Investment Management and one managed by Grantham, Mayo, van Otterloo (GMO) – accounted for 64 percent of the total inflows to emerging market bond funds, EPFR said.
Global equity funds also set a record, receiving $2.8 billion of fresh money, almost double their previous best mark of $1.47 billion in May 2002.
Don''t be fooled: emerging markets are still pimply teenagers
Parents are often too trusting when a difficult adolescent starts acting more like an adult. Then they feel let down when the child''s behaviour regresses. Investors in emerging markets may face a similar disappointment.
Investors have certainly given emerging markets their trust. The JPMorgan index of emerging market bonds now yields only 2.3 percentage points more than US Treasury bonds. That''s down from seven percentage points in 2003. It''s the same story with emerging market equities.
Strong buying ensured that the S&P/IFC emerging market index delivered a compound dollar return of 27 per cent in 2005, compared with 9 per cent for developed markets, according to Ibbotson Associates.
Optimists argue this enthusiasm is justified by a new-found economic maturity. In Asia, they point to big foreign currency reserves and trade surpluses, In Latin America, it''s profits from commodities and less bad fiscal management. And in Europe, there is the big EU market. But the enthusiasm is indiscriminate.
Take Turkey. Despite twin deficits totalling 11.5 per cent of GDP, and a diminishing chance of ever joining the EU, the stock market rocketed 107 per cent last year. Equity investors snapped up shares in Russian steelmaker Novolipetsk despite a 25-page-long list of risks in the prospectus.
Investors are also ignoring political warning signals - from the upheaval threatening the investor-friendly government in Brazil to the election of a populist Polish government. Bolivia has elected a coca farmer as its president. These aren''t signs of maturity.
The biggest reason to doubt that emerging markets have grown up is that they have not faced any adult challenges. High global growth has kept up demand for exports, especially of commodities. Liquidity has been ample. No one gets more of a buzz from all this support than emerging markets. And cheap borrowing makes fiscal prudence less painful. The real test of emerging markets'' maturity will only come when harder times return.
By Edward Hadas
Emerging market stocks may rise, small caps pricey
Thu Mar 9, 2006 3:39 PM ET
NEW YORK, March 9 (Reuters) - Stocks in emerging markets may have more room to rise, while small-cap equities look overvalued, the chief investment officer of The Glenmede Trust Co. told clients in a note released on Thursday.
Both asset classes have increased “dramatically over the past three years” in comparison to the broader markets, according to the report by Gordon Fowler, chief investment officer of The Glenmede Trust Co. in Philadelphia.
“We are inclined to believe that the rise in U.S. small- capitalization stocks has gone beyond the point warranted by valuations, and have experienced a minor mania,” Fowler said in the note.
“Emerging markets, on the other hand, are playing a bigger game of catch-up to the rest of the world and still possess a certain level of value,” he wrote.
Year-to-date returns in smaller-capitalization markets, including the U.S. small-cap market and emerging markets, are around 10 percent, he said.
END OF A SMALL AFFAIR?
Signs that investors'' love affair with small-cap stocks may be waning have already started to appear. For instance, TrimTabs Investment Research estimates that investors pulled a net $1.5 billion from the iShares Russell 2000 Index Fund in early March. That exceeded the $837 million they put in to the iShares fund during February.
In Fowler''s opinion, U.S. small-cap stocks are expensive, compared with some other asset classes, and could offer reduced potential for return, with corporate earnings growth estimated to decline.
Emerging markets, meanwhile, are still cheap compared with other asset classes, such as the Japanese equity market, and therefore “offer the greatest potential for return,” he said.
Fowler''s view is in contrast to the opinions of some other analysts, who believe that high-yielding assets in emerging markets may be highly vulnerable to a sell-off – especially in the face of global central banks raising interest rates.
The European Central Bank raised rates by a quarter- percentage point to 2.5 percent last week to stem inflationary pressures from high energy prices and credit growth. That increase, which was the ECB''s second credit tightening in three months, pushed the euro zone''s key interest rate up to the highest level in nearly three years.
U.S. market watchers are expecting Federal Reserve policymakers to raise short-term interest rates in March and possibly again in May or June.
The global interest-rate outlook also was affected by news overnight that the Bank of Japan decided to end the super-loose monetary policy it has maintained for five years. The termination of that policy is seen as the first step toward interest-rate increases in Japan.
Investment Institution selalu optimis….., IMHO BoJ akan sangat hati-hati (pelan-pelan) menaikkan suku bunganya. Jangan sampai terjadi kenaikkan 0.25 BP membuat ekonomi jebol lagi. Banyak carry trader bermain di Yen. Penguatan Yen dan kenaikkan suku bunga Yen akan membuat mereka knock-out dan akhirnya melahirkan krisis. Jadi BoJ harus pelan-pelan, kasih aba-aba dan peringatan dulu……,
Saya melihat Mitsubishi Heavy Industry akan naik karena Industry Jepang akan mulai melakukan peremajaan. Dan Sekisui Housing juga. Karena keperluan perumahan yg sudah tertunda lebih dari 10 thn, juga properti untuk perkantoran. Judul investasinya, siap-siap menyongsong kebangkitan ekonomi.
Emerging-Market Funds Draw $20.9 Bln This Year, Beating Record
March 14 (Bloomberg) – Emerging-market equity funds have attracted $20.9 billion this year, eclipsing the record inflows they garnered in all of 2005, as faster economic growth and a commodities boom lured investors to markets from India to Russia.
Funds investing in emerging-market equities had about $910 million in net inflows in the week ended March 8, pushing the total for the first 11 weeks of 2006 past last year''s record $20.3 billion, according to Emerging Portfolio Fund Research, which tracks almost 10,000 such funds with $5 trillion in assets.
``There have been huge windfall gains'''' in emerging markets from commodities, said Philip Ehrmann, who oversees about $3 billion as head of emerging-market equities at Gartmore Investment Management in London. ``Ever since 2001 and 2002, we''ve had rising and relatively high returns on equity as compared with the developed world. Now everyone is noticing.''''
The record inflows have helped emerging-market equities, which outperformed developed markets in each of the last five years, produce higher returns again in 2006.
The Morgan Stanley Capital International Emerging Markets Index, covering 26 markets in Asia, Eastern Europe, Latin America and the Middle East, has climbed 7.8 percent this year and touched an all-time high of 791.85 on March 2.
That exceeds the 4.5 percent gain in the MSCI World Index of developed markets. Twenty-two of MSCI''s 26 emerging markets have advanced this year. Only Egypt, Israel, South Korea and Taiwan have declined.
Rising Interest Rates
Ehrmann, a 16-year veteran in emerging markets, says the amount that Gartmore manages in emerging-market equities globally has doubled in the past 12 months. His $539 million Gartmore Emerging Markets Fund, which is priced in euros, has a return of 10.1 percent in dollar terms this year. He declined to disclose Gartmore''s net inflows since the end of 2005.
Investors around the world added more money to emerging- market stock funds last week even as the shares posted their biggest weekly losses in 14 months.
The MSCI Emerging Markets Index dropped 4.1 percent in the week ended March 10 on concern that increasing borrowing costs in the U.S., Europe and Japan, the world''s three largest economies, will slow global growth and make riskier assets, such as shares in emerging markets, less attractive.
The Federal Reserve raised U.S. interest rates for a 14th straight time to 4.5 percent on Jan. 31. The European Central Bank this month raised its rate by 0.25 percentage points to 2.5 percent, and indicated further increases are possible.
The Bank of Japan last week joined the Fed and the ECB in tightening monetary policy. The BOJ reduced the amount of cash it provides to lenders and may raise rates this year.
``I wouldn''t be surprised if the institutions, such as pensions and endowments that have been plowing so much money into emerging-market funds, will see this pull back as an opportunity to plow more in,'''' said Brad Durham, managing director at Emerging Portfolio. ``It doesn''t feel like the pull back will continue for too long before investors will again rediscover strong emerging-market growth.''''
Growth in emerging-market economies will probably reach 5.5 percent this year, exceeding the 3.7 percent globally, according to UBS AG''s Darren Read, the top-ranked strategist for emerging- market equities in an Institutional Investor survey.
Stock funds investing in Asia have attracted the most net inflows regionally, with $11.3 billion for the year to March 1, the latest available data from Emerging Portfolio showed.
Stock indexes in China and India, the world''s two most- populous countries, have benefited.
The Shanghai Composite Index, which covers yuan-denominated A shares and foreign-currency B shares, has advanced 8.5 percent. Emerging-market funds have invested more in Chinese equities this year after the government eased restrictions on overseas investment in locally listed companies.
India''s Sensitive Index has climbed 15 percent in 2006, breaking the 10,000 level for the first time ever and closing at a record 10,803.71 yesterday.
This week, a report showed industrial production in India accelerated at the fastest pace in three months in January, helping to bolster expectations economic growth will meet the government''s 8.1 percent forecast in the year ending March 31.
Latin America has produced the biggest regional returns in 2006, with the MSCI EM Latin American Index climbing 13 percent. Stock funds that invest in the region garnered $3.8 billion in the year to March 1, according to Emerging Portfolio.
The money attracted by Latin American stock funds is the most of the three regions, when comparing inflows as a percentage of each region''s total market value.
Brazil, the biggest stock market in Latin America, has gained 10 percent in 2006. For overseas investors using dollars, gains for the year balloon to 20 percent.
The Bovespa index climbed to a record on March 1 amid expectations that demand for commodities such as iron ore and sugar, as well as increased consumer spending, will lead to faster economic growth and higher corporate profits.
The central bank forecasts Brazil''s economy will expand 4 percent this year, after growing 2.6 percent in 2005.
Latin America is also home to two of MSCI''s three best- performing emerging markets: Venezuela and Peru. The Caracas Stock Exchange index has surged 45 percent this year, making it the world''s best-performing stock benchmark among 77 tracked by Bloomberg. The Lima General Index has climbed 22 percent.
Russia had the biggest gain among the 10 biggest emerging markets globally. The dollar-denominated Russian Trading System Index has added 23 percent and reached a record on Feb. 27.
Russia, the largest emerging market in Europe and the world''s second-largest oil producer, said on March 3 it expects an additional 560 billion rubles ($20 billion) in revenue this year, bringing the estimated yearly total to 5.6 trillion rubles, because of higher-than-expected oil prices.
Revenue from oil exports has ``been used to pay down debt and used by the government to try to stimulate other parts of the economy,'''' said Gartmore''s Erhmann. ``Russian economic growth is not only strong but spread more evenly.''''
Buffett offers a $14B safety net?
Tuesday April 4, 10:36 am ET
Billionaire investor Warren Buffett is making a $14 billion bet on global stock markets, according to an article Tuesday.
Buffett''s Berkshire Hathaway has sold clients insurance protection against a drop in four equity indices, the Financial Times reported.
If the indices, three of which are outside the U.S., fall by 30 percent over the 15-20-year life of the contracts, Berkshire would incur a pre-tax loss of about $900 million. It has a maximum exposure of $14 billion, according to the report.
Analysts told the paper that the purchasers of the index contracts were probably pension funds that wanted to increase their potential long-term returns by holding more equities but needed protection in case of a stock market meltdown.
In a filing, Berkshire Hathaway did not disclose any more detail about the contracts, including the premiums it would receive or the level the indices must fall below before it made a pay-out, the paper said.
So, the oracle of Omaha is still bullish on stocks… :-?
Don''t give up on emerging markets, value to be had
Wednesday, May 17, 2006
LONDON - Reuters
Spectacular losses posted by emerging market equities, bonds and currencies amid a global reassessment of U.S. interest rate policy are unlikely to last as most assets still offer longer-term value, fund managers say.
Fears that interest rates in the United States, the euro zone and Japan could rise more and sooner than expected have sparked worries that global economic growth may slow, hitting commodity prices and filtering through to emerging markets stocks and currencies.
Speculation Japan might start raising interest rates, thereby cutting the attractiveness of funding emerging market investments with “cheap” Japanese yen, has also begun to bite.
But the unwinding of emerging market positions is just creating more value, say investors who trade them exclusively. Most of these investors believe general asset allocation to the historically riskier asset class still remains underweight against its more established market peers, even after years of stellar returns.
In fixed income and currencies, Latin America and Asia are among the favorites for good value, while stocks in Turkey, India and Russia are attractive, various analysts have said.
"From a value perspective are not overbought. Fundamentals are strong and profits are expected to grow faster than in developed markets this year and next year as well,“ said Julian Mayo, investment director at Charlemagne Capital in London which has $5 billion under management.
”Emerging markets are being affected by global trends. The encouraging thing from our perspective is that these are global trends rather than emerging market-specific events,“ he said.
”This was bound to happen with local foreign exchange because it has been a one-way road all along. What has been happening with emerging markets locally, including FX, looked a lot like a bubble,“ said Raphael Kassin, head of emerging markets fixed income at ABN AMRO Asset Management in London.
But Kassin who manages $3.5 billion, is still positive on emerging markets, highlighting strong economic fundamentals and prudent fiscal policies that many countries are pursuing.
Oil and metals prices have fallen hard, taking a toll on commodity-linked currencies such as the rand, Brazilian real and the Chilean peso. Much of the recent emerging markets bull run has been fed by high prices for key commodities that fattened government coffers and created healthy current account surpluses in some countries.
For one bank, the drop in asset prices is not an immediate buying opportunity because the global trends such as a weaker dollar and tighter global liquidity due to rising inflation pressures are not about to change anytime soon.
”We therefore expect currency and fixed income markets in the emerging markets to come under additional pressure in the time ahead,“ wrote analysts at Copenhagen-based Danske Bank.
”However, we would also stress that we currently do not see any risk of a major emerging markets crisis, as fundamentals are generally strong,“ Danske wrote.
Marc Balston, emerging markets debt strategist at Deutsche Bank, says the bank is still very positive on emerging markets and that in the short-term there will be some turbulence.
”As far as the credit market is concerned, credit spreads still being on a relative value basis are fairly attractive and fundamentals are still very strong,“ he said.
”Currencies, we''re positive probably more so on Latin America. Generally we still like Asian currencies against the dollar,“ Balston said.
Asian emerging market currencies are expected to be the strongest performers in 2006 against the U.S. dollar, Danske Bank said, highlighting the current account surpluses.
”Asian currencies will firm further this year on the back of yen and renminbi strength,“ the bank said.
Angelika Millendorfer, fund manager for emerging European equities at Raiffeisen Capital Management, believes the correction in prices was justified and that valuations could soon become more attractive.
”In Turkey, the correction in the currency could be positive for Turkey''s export competitiveness so from an economic point of view it is not a disadvantage,“ Millendorfer said.
That attitude is pervasive across the investor spectrum.
”We are long-term investors. Retrenchment is an opportunity and every shakeup brings new bargains to the surface," said Ivan Mazalov, Moscow-based fund manager at the $2.5 billion Prosperity Asset Management.
Despite dip, emerging market funds seen solid
BY JEREMY HERRON
THE ASSOCIATED PRESS
Investors who poured money into emerging markets mutual funds the last two years may be feeling a little uneasy after the funds'' sharp decline over the past month.
Fund analysts aren''t so worried - they say the downturn is only a correction in markets that are fundamentally strong.
And, they say, while these investments are risky, emerging markets deserve a place in a long-term diversified portfolio.
After delivering a three-year return of more than 40%, emerging markets funds had a negative return of 8.41% in the past month, pulling its year-to-date return down to a still-hefty 10.23%, according to fund tracker Morningstar.
“The recent sell-off is not a sign of long-term trouble,” said Arijit Dutta, a mutual fund analyst at the research firm Morningstar. “People were chasing performance, so with so much cash going in, it is bound to cause the markets to overheat.”
Emerging market funds had cash inflows in the U.S. of $23 billion in the first quarter of 2006, equaling the total for all of 2005 and more than five times the level in 2004, according to Brad Durham, managing director at Emerging Portfolio Fund Research.
“They got ahead of themselves,” Durham said. “The market was due for a correction.”
That came as a huge outflow - some $5 billion - in the week ended May 24, Durham said.
Analysts say emerging markets funds are essential for long-term investors seeking growth.
Julian Thompson, portfolio manager for RiverSource Emerging Markets Fund, recommends holding funds at between 5% and 20% of a portfolio.
Morningstar''s Dutta is less bullish. “We have been saying for more than a year to cut holdings in emerging markets to about 5% to 8%,” he said.
Dutta advises caution because the funds are by nature risky, targeting companies based in so-called developing economies where volatility is high and the risk of an economic collapse is real. Remember the crises of the 1990s that swept from Mexico to Asia then to Russia and Brazil.
“Emerging markets do have a role to play, but it should be limited because of the volatility,” Dutta said.
The funds typically hold stocks in 70 to 100 companies based primarily in those once-troubled areas, but also in India and especially China. They include smaller countries in Latin America, Eastern Europe and Africa, too.
There has been talk that the recent downturn - led by a sell-off in India that sent the country''s stock market tumbling - is the start of a new period of volatility. The reversal started over concerns that China might slow its economic growth to prevent its economy from overheating, said RiverSource''s Thompson.
“That was overblown,” he said. “China''s performance has been profound and it will continue to support commodity prices.”
Analyst bullish about stock markets in Indonesia, India
HONG KONG, AP
Indonesia is likely to continue outperforming other Asian stock markets over the next 12 months because of its declining interest rates, a trend that will boost consumption and overall economic growth, said Manulife Asset Management (Hong Kong) Ltd. senior portfolio manager Manish Bhatia.
“Our expectation is that Indonesia will continue reducing interest rates and as interest rates come down, consumption can pick up and that will become a solid leg for the economy to stand on,” said Bhatia, who helps manage around US$450 million (euro352 million) in assets in Asia-Pacific funds.
On Tuesday, Bank Indonesia cut its benchmark rate by 50 basis points to 11.75 percent, the biggest reduction in borrowing costs in more than three years, to revive consumer spending and spur economic growth. The central bank said the ongoing decline in consumer prices will allow it to continue cutting its one-month interest rate further in the coming months.
Indonesia recorded on-year inflation of 15.15 percent in July, down from June''s 15.53 percent. Inflation peaked at 18.38 percent in November. Many analysts expect the benchmark rate to settle at around 11 percent by year-end.
Stronger consumption will allow Indonesia''s economy to strengthen even if its exports falter due to the possibility of a U.S.-led slowdown in global economic growth, Bhatia said, adding that the full effects of lower interest rates will become clearer in 2007.
“The potential to pump prime the economy through lower interest rates is highest in Indonesia,” Bhatia said, comparing the monetary easing in that market with others in the Asia-Pacific region.
Last month, Indonesian Minister of Finance Sri Mulyani Indrawati said the economy likely grew 4.59 percent on year in the first six months of 2006, slower than the 6.3 percent growth in the same period last year.
That suggests that the government''s full-year target of 6.2 percent may be difficult to achieve. The economy grew 5.6 percent in 2005.
Elsewhere in Asia, Bhatia is also bullish over the prospects of India because of its strong domestic economy.
Emerging market equity funds see $1 bln Aug inflow
Fri Aug 11, 2006 12:52pm ET
NEW YORK, Aug 11 (Reuters) - Emerging markets equity funds received nearly $1 billion of inflows in the first two weeks of August, the best performance since May, as a pause in the U.S. campaign to raise interest rates made investors willing to take more risk, Emerging Portfolio Fund Research said on Friday.
Equity funds posted positive net flows of $418.7 million in the week through Aug. 9 after a surplus of $509.4 million in the previous period, according to EPFR data.
Flows into emerging market bond funds grew some 70 percent in the same period, to $280 million from $164.6 million.
Investors only recently resumed buying into emerging markets funds, after a strong sell-off knocked down prices of high-yielding assets between mid-May and mid-June.
Prices recouped after that in anticipation of the U.S. Federal Reserve decision to stop raising rates, luring investors back to dedicated emerging market funds, Brad Durham, EPFR''s managing director, said in a telephone interview.
“If you look at the performance of emerging market equity funds (in returns), going back to June 21, since then they''ve had seven out of eight weeks of positive performance. So it''s a pretty good run in portfolio performance,” he said.
Emerging Portfolio tracks investment flows from 15,000 international, emerging markets and U.S. funds with $7 trillion in assets.