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Emerging markets index to surge
(China Daily/Agencies)
Updated: 2010-02-09 10:04
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Goldman Sachs urges investors to buy in China, forecasts gains
The biggest tumble in developing-nation stocks in 11 months is making investment strategists at Morgan Stanley, Credit Suisse Group AG and Goldman Sachs Group Inc as bullish as ever.
Morgan Stanley's Jonathan Garner predicted the MSCI Emerging Markets Index would surge 34 percent by the end of 2010 as corporate profits jump 40 percent. Sakthi Siva of Credit Suisse said declines in the 22-country gauge may be limited to 5.3 percent. Goldman's Thomas Deng recommended investors buy in China, where he forecasted the CSI 300 Index will gain 36 percent in the next 10 months.
The strategists said developing markets are showing parallels with May 2004, when the MSCI index recovered from a two-month tumble of 11 percent to rally 26 percent by the end of the year. Like then, investors are pulling money out of emerging-market funds on concern lending curbs by China and interest-rate increases from India to Brazil will restrain economic growth.
"The emerging world is going to come out of this in stronger shape," said Julian Mayo, an investment director in London at Charlemagne Capital, which oversees about $3 billion. "This is one of the speed bumps along the way. 2004 ended up being a good year for emerging-market investments."
The MSCI gauge lost 13 percent from its 2010 peak on Jan 11, the biggest decline since a16 percent drop that ended on March 2, 2009. The index fell 3.8 percent last week to 897.70, the lowest level since Sept 15, and slid 0.4 percent to 894 as of 12:38 pm in Singapore. MSCI Inc's measure of advanced-nation shares dropped 2.2 percent last week.
Gazprom, Moscow-based OAO Gazprom, Vale SA of Rio de Janeiro and Industrial and Commercial Bank of China Ltd in Beijing led a retreat from energy producers, raw-materials companies and lenders after policymakers in China and India raised banks' reserve requirements last month to slow credit expansion in the world's fastest-growing major economies.
Emerging-market stocks also sank as state-controlled Dubai World failed to present a restructuring plan for $22 billion of debt and speculation increased that Greece, Spain and Portugal may struggle to repay lenders as their budget deficits widen.
"Everyone was feeling very sanguine about China going into the fourth quarter and now you've got tightening measures," said Nikhil Srinivasan, who helps manage about $30 billion as chief investment officer for Asia and the Middle East at Allianz Investment Management in Singapore. "Greece is a problem, not because it's a big country, because it's the eurozone. That's a problem for risk."
Fund losses
Emerging-market mutual funds had the second week of outflows in the week ended Feb 3, totaling $1.6 billion, while individual investors withdrew $612 million, according to Cambridge, Massachusetts-based research firm EPFR Global.
Professional and private investors took out a combined $1.4 billion from emerging-market funds during the third and fourth weeks of the 2004 retreat, EPFR data show.
Chinese policymakers helped spark the 2004 selloff in April as they raised reserve requirements for banks and told lenders to stop financing overheated industries, spurring concern the government would increase interest rates from the lowest levels on record.
The MSCI gauge fell 11 percent in April and May, then rebounded 26 percent through the end of the year as developing-nation economies grew 7.5 percent and corporate profits jumped 66 percent, according to data compiled by the International Monetary Fund and Bloomberg.
Aronstein turns bearish
"This looks like 2004," Siva, Credit Suisse's Asia Pacific and global emerging-market strategist in Singapore, wrote in an e-mailed note on Jan 26, advising investors to buy shares if the MSCI index falls to 850, or 5.3 percent below its closing level last week.
The IMF predicted developing countries would expand 6 percent in 2010 and 6.3 percent next year, according to its January World Economic Outlook report. The MSCI gauge is valued at 12 times analysts' profit estimates, compared with a price-to- earnings ratio of 14 in April 2004, according to Bloomberg data.
Developing-nation stocks are among the world's riskiest because investors drove prices too high on overly optimistic expectations for earnings and economic growth, said Oscar Gruss & Son Inc's Michael Aronstein.
Investors poured a record $64.5 billion into emerging- market equity mutual funds in 2009, according to EPFR Global. Developing markets were the most-favored among global money managers surveyed by Charlotte, North Carolina-based Bank of America Corp last month.
