Emerging Stocks Seen Overbought as Jump Spurs Brazil Bull – Bloomberg 09-12-13

Salient to Investors:

The MSCI Emerging Markets Index RSI touched 70, the level that signals a security is poised to decline. The last time it touched 70, on January 14, 2013, was followed by an 18% drop in 5 months. The Index breached its upper Bollinger band on Sept. 10, another bearish technical indicator.

The Index is headed for its biggest annual underperformance since 1998 versus the developed-nation index. Emerging-market stocks are at 10.6 times estimated earnings, the highest since May.

Joseph Dayan at BCS Financial said investors are just pausing for a breather and not much more.

Regis Chatellier at Societe Generale said the latest economic data from China to Brazil point to improved growth in developing economies and should boost demand for emerging-market assets. Chatellier said the backdrop has changed from the US leading the way on the growth front.

Saharat Chudsuwan at Tisco Asset Mgmt said as even as Chinese economic fundamentals improve, boosting the outlook for its stock market, emerging-market volatility should remain high in the next few months as the Fed tapers. Chudsuwan is still overweight shares of developed markets such as the US and Japan.

Marc Desmidt at BlackRock said emerging-market stocks are not more attractive than developed market stocks. Desmidt said it is not surprising to see bounces from oversold positions in some emerging markets but there is more stress ahead.

Read the full article at  http://www.bloomberg.com/news/2013-09-11/emerging-stocks-seen-overbought-as-jump-makes-brazil-bull-market.html

Harvard MBA Running Nigeria Fund Says Stocks Too Costly – Bloomberg 09-09-13

Salient to Investors:

Uche Orji at Nigerian Sovereign Investment Authority said:

  • Many asset classes are richly valued, including developed market equities.
  • The DJIA has gained each year since 2009 and Europe is recovering, so equity values may rise further amid Fed tapering.
  • Nobody knows what tapering is and nobody has seen this level of QE in history so we do not know how the market will react.

Read the full article at  http://www.bloomberg.com/news/2013-09-09/harvard-mba-running-nigeria-wealth-fund-fears-stocks-after-rally.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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Global Bonds Dive for Second Month as Stocks Lose $2.7 Trillion – Bloomberg 06-30-13

Salient to Investors:

Binky Chadha at Deutsche Bank said the market had been pricing in that the Fed would normalize rates much more slowly than it has done historically, and the shock has spilled over across all of the asset classes.

The World Bank said the world economy will expand 2.2 percent in 2013 and the euro region will shrink 0.6 percent.

Seamus Mac Gorain at JPMorgan Chase expects the developed market sell-off to proceed at a far more measured pace over the remainder of 2013, while the position squaring in emerging markets has some way to go, not least because the degree of illiquidity in the sell-off has surprised.

Jeffrey Gundlach at DoubleLine Capital says the worst is over for Treasuries as stability returns to the stock and fixed-income markets.

Bill Gross at Pimco said bond yields and risk spreads were too low 2 months ago and the Fed tilted over-risked investors to one side of an overloaded and over-levered boat, so don’t panic.

Howard Ward at Gamco Investors said the markets needed to vent some steam and did, and Bernanke’s comments were seen as more hawkish than he expected.

In May, analysts cut 2013 earnings estimates for emerging-markets stocks by 3 percent, and raised estimates for MSCI developed-market companies 0.2 percent and 0.1 percent for the S&P 500.

Hayes Miller at Baring Asset Mgmt said we are not out of the woods, and while emerging markets are cheap relative to developed markets, earnings expectations continue to be downgraded fairly rapidly, while developed markets, particularly US and not so much Europe, are seeing upgrades.

Goldman Sachs, Morgan Stanley and Credit Suisse cut their gold forecasts in June as ETP holdings sank to a 3-year low. Societe Generale said investors may sell an additional 285 tons in 2013.

Georgette Boele at ABN Amro said gold does not generate income and is vulnerable to higher interest rates, while weaker data out of China and concerns about emerging markets have hurt the demand outlook.

Read the full article at  http://www.bloomberg.com/news/2013-06-30/global-bonds-dive-for-second-month-as-stocks-lose-2-7-trillion.html

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Did Bernanke Signal Return of Risk-Off Market? – Bloomberg 06-27-13

Salient to Investors:

A. Gary Shilling at A. Gary Shilling & Co. writes:

Short stocks and commodities, go long the dollar and Treasuries – if stocks continue to decline, the safety of Treasuries and investment-grade bonds will outweigh concerns about the end of QE.

World economies are growing slowly at best and hold no interest for equity investors, whose entire focus has been on QE.

Investors are facing two shocks: the end of QE and a hard landing in China.

China’s growth is slowed by huge excess capacity and declining numbers of labor force entrants. Official growth data are vastly overstated. and is closer to the 5 percent to 6 percent hard-landing level. China’s total domestic credit from banks et al was 207 percent of GDP in 2012 versus 145 percent in 2008, with much of the increase coming from shadow banking. Short-term interest rates rose to 25 percent last week.

Ultralow interest rates have pushed investors into the highest-yielding assets they could find, regardless of risk, including junk bonds, leveraged loans that finance private-equity buyouts, developing country bonds, investor-owned single-family rentals, and high-dividend stocks such as utilities and consumer staples.

Investors are dumping emerging-market assets and junk bonds. High dividend stocks which outperformed in Q1 underperformed in the recent sell-off. Pension funds have moved into private equity, developing-country stocks and bonds, hedge funds and even commodities.

The average closed-end bond fund has fallen 10.7 percent in the past month versus a 3.4 percent decline in open-end bond funds.

Developed country stocks have much further to drop. The sluggish US economic recovery has produced minimal sales volume growth and no increased pricing power as inflation rates fell to zero, resulting in companies cutting costs, pushing corporate profits’ share of national income to an all-time high.

Robert Shiller’s cyclically adjusted P/E indicates the S&P 500 is 30 percent above its long-term trend.

Slower Chinese growth in manufacturing undermines the rationale for the commodity bubble of the early 2000s. Higher interest rates are eliminating the incentive to store crude oil for sale in the futures market at higher prices.

Gold buyers who thought QE would promote instant hyperinflation are finding instead inflation rates dropping to zero and higher interest carrying costs.

The dollar should continue to gain as a haven, especially as protection from the euro. The strong dollar makes many commodities more expensive for businesses that operate in weakening currencies.

The yen will continue to drop against the dollar as Abe tries to turn deflation into 2 percent annual inflation and force the BoJ to double its purchases of securities.

Commodity currencies such as the Australian dollar, the Brazilian real and the Russian ruble remain vulnerable as exports and prices continue to fall.

Currency devaluations in Japan and elsewhere will be matched by competitive devaluations worldwide. No country wins in competitive devaluations as foreign trade is disrupted. In the end, most will end up devaluing against the US dollar.

Read the full article at  http://www.bloomberg.com/news/2013-06-27/did-bernanke-signal-return-of-risk-off-market-a-gary-s.html

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Texas U. Sold $375 Million in Gold Bars; Exposure Steady – Bloomberg 04-25-13

Salient to Investors:

Bruce Zimmerman at Utimco said that in the 3 months ending February 28, his fund reduced bullion holdings of $1.4 billion by $375 million, and bought $75 million in gold futures, $225 million in developed-market equities and $75 million in emerging-market equity futures.

Zimmerman said the fund’s total exposure to gold has not changed.

Read the full article at http://www.bloomberg.com/news/2013-04-24/texas-university-fund-sold-375-million-in-gold-bar-holdings.html

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Emerging-Market Returns Unhinge From Developed: Chart of the Day – Bloomberg 04-23-13

Salient to Investors:

JPMorgan Chase said that from June 2010 through 2012, the positive correlation between developed and emerging- market equities daily performance was 89.6 percent, but in 2013 there is a negative correlation of 60.3 percent as emerging-market stocks slumped.

Andres Garcia-Amaya at JPMorgan said emerging markets could continue to fall because their economies are not growing as fast but their wages continue to rise, while commodities could also weigh because equity markets in developed economies are much more balanced in sector composition. Garcia-Amaya said the picture may be brighter for emerging-market equities beyond the next 3 years.

Read the full article at http://www.bloomberg.com/news/2013-04-23/emerging-market-returns-unhinge-from-developed-chart-of-the-day.html .

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