Flows to Emerging Markets Rebound After August Slump, IIF Says – Bloomberg 09-29-14

Salient to Investors:

The IIF reported:

  • Emerging markets received $18 billion in total inflows in September versus the $24.4 billion monthly average from 2010 to 2013.
  • Indian and Mexican bond markets and the Brazilian equity market had inflow gains.
  • South Africa, Turkey and Indonesia had reduced inflows.

Read the full article at http://www.bloomberg.com/news/2014-09-29/flows-to-emerging-markets-rebound-after-august-slump-iif-says.html

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Bad Becomes Good for Brazilian Stock Investors: Chart of the Day – Bloomberg 09-04-14

Salient to Investors:

  • The Ibovespa stock benchmark has risen 35% from its March 14 bottom – the best performance of global major equity indexes – despite economists cutting 2015 growth forecasts month after month to a record low. Bullish investors are betting on a new government in October that will lure investment.
  • Analysts expect Brazil to grow 1.6% in 2015.
  • Nicholas Morse at Schroder Investment Mgmt said people are looking beyond the poor economic data.

Read the full article at  http://www.bloomberg.com/news/2014-09-05/bad-becomes-good-for-brazilian-stock-investors-chart-of-the-day.html

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Why Brazil’s Trouncing Is Bearish for Stocks, According to UBS – Bloomberg 07-09-14

Salient to Investors:

Geoffrey Dennis at UBS said Brazil’s 7-1 soccer loss to Germany was so crushing that it upends the conventional theory that World Cup defeat would be positive for Brazil’s financial markets because it would cause voters to oust Rousseff, who has sunk the economy into stagflation. Instead, Dennis says such a humiliating defeat could damp investor and consumer confidence, and he does not foresee a knee-jerk rally in markets.

Tony Volpon at Nomura said the defeat is nothing short of a national humiliation in a country that defines so much of its national character around its footballing prowess.

Alberto Bernal at Bulltick Capital Markets said the defeat may ultimately cost Rousseff the election, causing a 25 percent rally in Brazilian stocks.

Eamon Aghdasi at Societe Generale said Brazilian markets may come under pressure if the defeat sends protesters to the streets while failing to put a meaningful dent in Rousseff’s popularity, and recommends selling Brazil’s real versus the Mexican peso.

Read the full article at http://www.bloomberg.com/news/2014-07-09/why-ubs-says-brazil-s-7-1-trouncing-is-bearish-for-stocks.html

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Dimensional Winning in Emerging Markets: Riskless Return – Bloomberg 07-08-14

Salient to Investors:

Karen Umland at the DFA Emerging Markets Small Cap Portfolio Fund is slightly overweight India, and had 15 percent of holdings in Taiwan, over 14 percent in South Korea, over 14 percent in China, and 9.2 percent in Brazil at the end of Q1. Umland dislikes Russia and Egypt because of lack of market transparency and trading volume. Umland and co-manager Joseph Chi say companies with very low profits and high relative prices are chronic underperformers.

Patricia Oey at Morningstar said limited variation in country and industry weightings can hold back a fund so the DFA fund may outperform at times, and underperform at other times.

Read the full article at http://www.bloomberg.com/news/2014-07-09/dimensional-winning-in-emerging-markets-riskless-return.html

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The Breakdown of the BRICs – Bloomberg Businessweek 07-12-13

Salient to Investors:

In Q1 2013, BRIC bonds, currencies, and stocks fell together for the first time since 2006.

Since 2003, the MSCI BRIC Index has returned 227 percent, but is down 17 percent in 2013 and trailing the S&P 500 by the most since 1998. The MSCI BRIC Index trades at 1.2 times net assets, a 36 percent discount to the MSCI All-Country World Index.

BRICs accounted for 62 percent of global growth in 2012 versus 11 percent a decade ago.

EPFR said from 2005 through 2012, investors put $52 billion into BRIC mutual funds, and in 2013 have withdrawn $13.9 billion.

Ruchir Sharma at Morgan Stanley Investment Mgmt said every decade has a theme that captures investors’ imagination: gold in the 1970s, Japan in the 1980s, tech in the 1990s, and BRICs in the 2000s, which has basically run its course.

Olivier Blanchard  at the IMF said the BRICs are beginning to run into speed bumps.

Read the full article at  http://www.businessweek.com/articles/2013-07-12/the-breakdown-of-the-brics

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UBS’s Friedman Favors U.S. Stocks, High-Yield Bonds – Bloomberg 06-28-13

Salient to Investors:

Alexander Friedman at UBS says:

  • What Fed has done is not unexpected and the market reacted because it was ahead of itself. All the Fed was saying was that the US is doing OK, that the data is trending as it should, and that it has confidence that in the future it will be able to unwind QE, which is a positive.
  • Some investors were caught overleveraged in fixed income so there is unwinding of the carry trade. In countries like Australia, India and some emerging markets, a lot of investors hold bonds in local currencies which is a risk so expect significant volatility on the emerging market side.
  • China less a risk than perceived because it is just trying to re-balance and is willing to sacrifice some short-term growth to get control over the credit situation and avoid bubbles.
  • Biggest risk to investors is in misinterpreting the Fed, which creates a buying opportunity.
  • Last week the market saw much of the repricing of the tapering risk and so we won’t see a repeat in September. Assuming we see the positive economic data for the next few months which is necessary for the Fed to begin tapering then the market will focus away from life support and more on underlying growth.
  • Buy where underlying monetary policy will match the underlying  requirement and where there is economic growth: meaning US equities, US high yield equities which are oversold and now offer 6 to 8 percent returns over the remainder of 2103.
  • Wary of gold, which was an emotional trade against currency debasement and so has room to decline further.
  • Wary of emerging markets, including Australia, neutral on Europe.
  • Not yet seen bond money switching to equities as most of the money into equities has come from cash and money markets. We will see a shift from bonds to equities for many reasons, not least the immutable force of  demographics such as the elderly selling fixed income savings over time and there is no yield in them.
  • US high yields with equity characteristics are attractive.
  • Expect tapering around December although market is pricing in September. When it happens, US economic data will be trending positively and rising rates will accelerate the housing recovery story as it will cause fence sitters to buy to avoid the mortgage rates increases. Tapering of $10 billion a month is priced into the market and do not expect to see rates rising until 2015.
  •  US financials and insurance companies are a bet that rising interest rates will help their profitability.
  • The Russell 2000 stocks are more attractive because they have more cyclical exposure and exposure to the recovering US story as opposed to the global story where there is still sub-trend growth. With dividends and share buybacks, stocks offer a 4.5%- 5%  yield in 2013 which is attractive.
  • Long the dollar against many alternative currencies because of recovering economy and the Fed slowly winding down QE.
  • Less optimistic about Eurozone, and short Australia.
  • China rebalancing a good thing as banks have been lending too aggressively and China wants to avoid a credit bubble since shadow banking is such a huge proportion of their credit market. Clamping down on lending means it will be more expensive for companies to borrow so GDP will suffer a little bit. China growth could slow to as low as 7 %  causing more volatility short-term but OK over the longer term. Less concerned about China, which has great foreign reserves and is less reliant on foreigners owning local bonds with risk of money exit, unlike Australia, South Africa and India
  • The emerging market is a decent to good place to have a strategic allocation and you want exposure there for the longer term but short-term there is a lot of volatility.  Most worried about countries who have financed deficits with foreign money so when that money leaves they end up in a scary spiral. Countries like South Africa, India, Brazil.
  • Before the end of the year expect to see re-escalations of crises in the Eurozone for many reasons. The Eurozone periphery is like the emerging market with the same concerns including the unwinding of leveraged positions and volatility. After the German election we won’t see a path to true fiscal integration and banking union but instead a recognition that France is very weak, Germany won’t act alone, and that France and Germany are not acting together. Europe needs true labor reform in countries that are not competitive and that is very difficult
  • France is a concern because it has poor underlying economics and Hollande is weak politically.
  • Biggest concern is Spain, which is too big and quite vulnerable and will enter a program with the troika that will be put off politically until the last-minute after volatility spikes over the next 4 to 6 months.

Watch the full video at  http://www.bloomberg.com/video/ubs-s-friedman-favors-u-s-stocks-high-yield-bonds-p2pzBodIRoqFJMPLPcixdg.html

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Goldman’s O’Neill on Emerging Markets, U.S., Japan – Bloomberg 03-15-13

Salient to Investors:

Jim O’Neill at Goldman Sachs says:

  • China equities are very cheap and are the best place to be in 2013.
  • Don’t expect draconian tightening in China as inflation last year was way below their target and the government has been careful not to stimulate economy too much and are doing a good job. Recent market correction and February economic data was surprisingly soft. Chinese financial conditions have not eased that much in the past 6 months.
  • All BRICs except India are cheap or reasonably valued. Russian equities are particularly cheap.  The BRICs biggest problem was their expensive levels before the 2007 crisis, but their economic importance is growing dramatically and they are the biggest economic phenomenon of our generation – they create virtually the equivalent of another Italy every year.
  • Expects the S&P 500 to rise to 1575 in 2013 and then a 1500-1600 range but US economic growth will have to accelerate to ridiculously strong levels like 4 percent or more to justify above 1,600. Prefer peripheral Europe, Japan and some of the big emerging markets.
  • Abenomics is big and once Japan economy shows signs of improvement, then their domestic investors will join the huge buy-in from international investors in Japanese equities – a big story.
  • Yen will be 110 or weaker in 18 months but to head in that direction will require US economy to do well that the Fed changes its QE – the easy move for the yen is over.

Watch the full video at http://www.bloomberg.com/video/goldman-s-o-neill-on-emerging-markets-u-s-japan-7fdn6KFkS72KT_BtSROoGQ.html

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BRICs Abandoned by Locals as Fund Outflows Reach 1996 High – Bloomberg 03-15-13

Salient to Investors:

Investors are exiting the BRICs as disappointing profits and growing state intervention cause stocks to trail global shares for a fourth year. Over 59 percent of MSCI BRIC index companies have missed analyst estimates for the fourth-straight quarter in 2013. Peter Dixon at Commerzbank says lower valuations means the time is ripe for a rebound.

Trading by Brazilian individual investors is the lowest since 1999, Russian mutual funds posted 16 straight months of outflows, the most since at least 1996, withdrawals in India are the biggest in over 2 years, and investors emptied more than 2 million stock accounts in the past 12 months in China.

Michael Shaoul at Marketfield Asset Mgmt sees a steady exit, and is bearish on Brazil, India and China stocks, adding that locals have yet to reach the capitulation seen at market bottoms. Declining participation by local investors in Brazil preceded equity losses in 2010 and 1999.

John-Paul Smith at Deutsche Bank said locals know the fundamentals of a large part of their investable universe are not good, and it is difficult to find stocks with improving fundamentals at attractive valuations.

MSCI BRIC shares trade at 9.2 times 12-month earnings estimates, the cheapest level versus global equities since at least July 2009, and versus 13 times for the All-Country index.

Plamen Monovski at Renaissance Asset Managers said domestic money flows, outside of periods when there’s distress or forced selling, are less important than fundamentals for long-term equity returns: the 4-yr rally in US stocks suggests markets can advance even as some investors exit.

ICI reports US investors have added $20 billion to mutual funds in 2013.

Dmitry Sukhov said state interference in listed companies is driving away local investors and prefers developed-market companies that trade in Hong Kong, London and New York. Sukhov said the Russian economy is becoming less market-friendly and investors are disappointed they got the opposite of the liberalization of different economic sectors that they were expecting.

In the 3 years ended 2012, per-capita GDP in China jumped 63 percent to a record $6,094 , the BRIC average rose to an all-time high of $8,447.

Over 60 percent of Shanghai index companies so far reporting have missed analysts’ estimates versus 42 percent in the MSCI All-Country index.

Read the full article at http://www.bloomberg.com/news/2013-03-15/brics-abandoned-by-locals-with-fund-outflows-highest-since-1996.html

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Mantega Says Currency War He Named Eases as Brazil Recovers – Bloomberg 02-27-13

Salient to Investors:

The Bovespa stock index is down 6.6 percent in 2013, the worst performer in 94 indexes after Jamaica.  The median analysts expects Brazil, the world’s second-largest emerging economy after China, to grow 3.5 percent in 2013 versus 1 percent in 2012.

Read the full article at http://www.bloomberg.com/news/2013-02-27/mantega-says-currency-war-he-named-eases-for-recovering-brazil.html

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Bovespa Can Gain to 70,000 as Growth Picks Up, Bradesco Says – Bloomberg 02-21-13

Salient to Investors:

Joaquim Levy at Bradesco Asset Mgmt said the Bovespa index may rally 25 percent to 70,000 as the economic rebound offsets the raising of interest rates by July by the central bank to combat inflation. Levy said the government will have to stop making noises that could erode investors’ confidence for equities to rebound, while an eventual interest-rate increase could that the government is seeking to create the foundation for balanced economic growth.

Read the full article at http://www.bloomberg.com/news/2013-02-21/bovespa-can-gain-to-70-000-as-growth-picks-up-bradesco-says.html

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