China Baby Boom Wagers Go Bust on Child Cost Burden – Bloomberg 08-20-14

Salient to Investors:

  • Living costs in China are deterring couples from having more than one child as less than 3 percent of the 11 million couples applied for permission by the end of May.
  • The UN said China’s fertility rate of 1.66 versus the 2.1 needed to sustain population levels means its population will start falling by 2030.  The UN said the number of Chinese over age 60 may rise to 437 million by 2050 as the population drops to 1.38 billion from a peak of 1.45 billion in 2030.
  • Credit Suisse says raising a child in China from birth through age 18 costs 43% of average annual household income.
  • Zhang Gang at Central China Securities said baby-related stocks have room to fall further because of over speculation about a baby boom.
  • Economists expect China GDP to rise 7.4 percent in 2014, the weakest rate since 1990.
  • Ronald Wan at Asian Capital Holdings said people tend to have a second child when the macro-environment and property prices are more favorable and they have job security.
  • Mark Mobius at Templeton Emerging Markets said declines in some baby-related shares have reduced valuations to reasonable levels and investors should not expect birthrates to rise overnight as this is a longer-term trend.
  • A 2012 survey of pay by the Japan External Trade Organization found the base monthly salary for a factory worker in Beijing was $466 versus $145 in Hanoi.
  • Hao Hong at Bocom Intl said China’s rapidly aging population and declining birth rate will soon produce wage pressures, faster inflation and slower productivity growth, and even relaxing the birth-control act will not help reverse the trend anytime soon.


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Emerging ETFs Turn Positive for 2014 as Outflows Reversed Bloomberg 07-25-14

Salient to Investors:

  • Flows into emerging-market ETFs have turned positive for the year, reversing outflows in the first 2 1/2 months of 2014. The most inflows in 2014 have gone to India-focused ETFs. Investors have withdrawn $1.5 billion from China-targeted ETPs over concern over economic imbalances there.
  • The RSI of the BlackRock ETF is approaching the 70 mark that indicates overbought. The MSCI Developing-Nation stock index is at 11.2 times estimated earnings, the highest since 2011.
  • Adam Laird at Hargreaves Lansdown said emerging markets have grown in popularity in the past few months because nobody is 100 percent sure where the growth is going to come, but they know that the emerging economies are likely to see it.
  • Arko Sen at Bank of America said stronger US Treasuries and a more stable China has supported the entire emerging market complex. Sen said the major risk is geopolitics, like in Russia and the Middle East.
  • Mark Mobius at Templeton Emerging Markets predicts Chinese shares will rally, and likes state-owned banks and energy companies because of cheap valuations and plans to open up state-dominated industries.
  • Irene Bauer at Twenty20 Investments said they increased their emerging markets allocation to 25 percent of their portfolios, versus near zero 5-6 months ago, as the macro economic data has improved for many emerging-market countries, with India and China having particularly good outlooks.

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Mobius Shuts Frontier Fund to New Investors on Record Inflow – Bloomberg 09-25-13

Salient to Investors:

The Templeton Frontier Markets Fund closed its fund to new money, as record cash inflows turned frontier markets into the world’s best performers in 2013 – the MSCI Frontier Markets Index is up 13 percent in 2013 versus a 4.6 percent drop in the MSCI Emerging Markets Index.

Mark Mobius at Templeton Emerging Markets said the money was coming in too fast, but the market remains very buoyant and the opportunity longer term is still very, very good.  The Templeton Frontier Markets Fund had its biggest holdings in Saudi Arabia and Nigeria at the end of July, and its largest industry positions were financial and telecom stocks.

EPFR Global said funds that invest in frontier countries recorded $3.24 billion of inflows in 2013 through last week versus $879 million net inflows in 2012 and the previous annual record of $3.07 billion in 2010. Emerging-market funds had $13.7 billion of net outflows in 2013 through August.

Bloomberg said frontier nations accounted for 6 of the 7 biggest gains among global equity indexes this year and the MSCI frontier index is poised to advance during a year of losses in the emerging index for the first time on record.

Growing corporate profits, dividends and current-account surpluses have made frontier countries resilient to investor concern over Fed tapering.

 Tim Drinkall at Morgan Stanley Investment Mgmt said frontier-market equities will continue to outperform and continue to attract inflows as the asset class matures, by way of more liquidity in local markets and more investable products for institutional investors.

Sean Wilson at LR Global Partners said investors have realized that the growth story in traditional emerging markets has run its course, while frontier markets are only now being discovered by the broader investment community, and offer what traditional emerging markets offered 20 years ago.

Paul Herber at Forward Mgmt said investors are piling into frontier markets because of their growth prospects.

Lower trading volumes in frontier markets make it costly for investors to exit their positions. Andy Brown at Aberdeen Asset Mgmt said that given the liquidity in the market, the booms and busts could be even stronger than you would find in emerging markets.

Per-share earnings in the frontier index have increased 14 percent during the past 2 years versus an 11 percent drop in the emerging index. The frontier market index has a 4 percent dividend yield and is valued at 12.1 times reported earnings, versus a 2.7 percent yield and 11.9 times earnings for the emerging market index.

The IMF said current-account surpluses in frontier countries will grow to an average 3.4 percent of GDP in 2013 versus 3.1 percent in 2012 versus a deficit of 1 percent for emerging nations.

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Mobius: Gold Prices to Rise in Long Term – Bloomberg 07-30-13

Salient to Investors:

Mark Mobius at Templeton Emerging Markets said the dissonance between actual demand and the derivative market is causing gold price volatility, but long-term rising physical demand determines prices and they will trend upwards.

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Mobius Says Macau Casinos to Expand On Family Push – Bloomberg 04-22-13

Salient to Investors:

Mark Mobius at  Templeton Emerging Markets is holding and buying Macau gambling stocks as Macau will gain from expanding family entertainment and become China’s premier destination for leisure and entertainment.

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Best Stock Pickers Trawl Frontier Markets as U.S. Funds Lose – Bloomberg 02-01-13

Salient to Investors:

Stocks in the least-developed markets are producing annual returns at least 7 percent higher than mutual fund managers around the world. Carlos von Hardenberg at Franklin Templeton Investments said their companies are overlooked and under-owned.

Sam Vecht at BlackRock Frontiers Investment Trust is much more positive on frontier countries than emerging nations.

The MSCI frontier index is at 11.6 times reported profits, a 27 percent discount to the MSCI All-Country index versus a premium in June 2011 – the frontier index’s dividend yield and projected earnings growth are both one percent higher than the emerging-market gauge.

Euromonitor Intl says consumer spending in frontier nations will rise 9.2 percent on average in 2013 versus 8.3 percent pace in emerging markets.

Rami Sidani at Schroder Investment Mgmt said frontier markets offer great growth prospects and are tomorrow’s emerging markets – their smaller volatility and lower correlations offer returns less tied to fluctuations in global markets. Sidani said institutional investors have $15 billion in frontier countries. EPFR Global said global emerging market funds have  versus $330 billion.

The MSCI frontier index’s 50-day historical volatility is 5 and correlation with the All-Country index is 0.4 versus 8.6 and 0.6 for the emerging index. The 50 biggest companies in the MSCI frontier index average 9 analyst recommendations, versus 29 for the MSCI emerging market index, and 33 for the S&P 500.

Hans-Henrik Skov at BankInvest New Emerging Markets Equities Fund said what happens in the US has a lesser impact on how many beers the average guy in Kenya is drinking.

Thomas Vester Nielsen at Lloyd George Mgmt Fund said investors can reduce risk by making long-term investments and avoiding countries with a high chance of government intervention. Nielson said one advantage of smaller markets is there are fewer money managers vying for access to politicians and company executives, making it easier to visit with officials and gauge government policy and corporate strategy.

Timothy Drinkall at Morgan Stanley Investment Mgmt said it’s very early days for pension funds to allocate to frontier markets because they are relatively small and illiquid.

Nigeria was Mark Mobius’s biggest country holding as of Dec. 31 in the Templeton frontier fund.

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Mobius Buying More Malaysian Stocks; May Sell Indonesian Banks – Bloomberg 01-07-13

Salient to Investors:

Mark Mobius at Templeton Emerging Markets says the Malaysian administration has been very good for the markets and will continue to be so, and is buying more Malaysian shares on the country’s economic growth prospects. Mobius is possibly cutting back on Indonesian banks and Indian natural-resources stocks due to valuations.

The Jakarta Finance Index was at 12.3 times trailing earnings last week, while the BSE India Oil & Gas Index was at 11.1 times estimated profit. The FTSE Bursa Malaysia KLCI Index trades at 15.1 times estimated earnings, a 37 percent premium to the MSCI Emerging Markets Index

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BRIC Dominance Fades as State Meddling Curbs Equity Returns – Bloomberg 12-31-12

Salient to Investors:

John-Paul Smith at Deutsche Bank said stocks in the major developing markets will again lag global equities in 2013 – China has focused on increasing the pool of buyers for Chinese assets, rather than boosting the role of free markets and privately run companies in the broader economy. Smith prefers cash to BRIC shares, which he sees as a contest between the un-investible and the overvalued.

The IMF expects growth in BRICs to average 4.5 percent in 2012 versus 8.1 percent in 2010 and 3.3 percent for the global economy.

Mark Mobius at Templeton Emerging Markets said we are only in the middle of the revolution from socialism to market economies, with a long way to go. Mobius is selling Indian mining stocks because of government restrictions.

Allan Conway at Schroder Investment Mgmt said the fact that we talk about how much further there is to go, shows the opportunity.

The MSCI BRIC index is at 10 times earnings, 30 percent less than the MSCI’s All-Country P/E. The MSCI index of Chinese financial stocks trades at 8 times earnings, 36 percent below its 5-yr average and versus MSCI’s index of consumer staples at 28 times earnings, a 34 premium to its historical mean. The Micex index trades at 5.9 times earnings, the lowest level of 45 emerging and developed markets.

Ruchir Sharma at Morgan Stanley Investment Mgmt said governments reform only when they have their back to the wall – we’re moving in the right direction in some countries, but the task is enormous.

The McKinsey Global Institute said Brazil may face an equity gap of more than $1 trillion this decade as companies’ financing needs outstrip investor demand for shares. Many investors in BRIC companies prefer to buy shares on overseas exchanges. The drop in stock trading makes it harder for governments to revive growth.

Jeff Urbina at William Blair said:

  • Chinese companies need funding sources outside the banking system.
  • Good publicly traded markets are necessary for developin long-term.
  • Investors are more concerned about a lack of corporate governance in Russia than how they access local markets.
  • The real big issue in develping markets, particularly Russia, is the lack of corporate governance – all the value in the world is not going to get to the shareholders.

Jim O’Neill at Goldman Sachs Asset Mgmt said India is the most promising BRIC in terms of long-term stock gains. O’Neill is bullish on Chinese equities as China’s changes are very exciting and very positive. .

Soren Beck-Petersen at HSBC Global Asset Mgmt said India is tackling the issues head on to stimulate growth and restore investor confidence.

The 8 largest companies by market cap in the Shanghai Composite are state-controlled. The World bank says over 25 percent of China’s state-run enterprises are unprofitable, while productivity growth has trailed non-state firms by 66 percent over the past 3 decades.

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Mobius Says Emerging Stocks to Rise as Fed Spurs Hunt for Return – Bloomberg 12-12-12

Salient to Investors:

Mark Mobius at Templeton Emerging Markets said:

  • Developing-nation equities will climb in 2013 on low debt levels, high foreign exchange reserves, economic growth that may average 5 percent in 2013, central banks adding money to the financial system.
  • Low interest rates make equities very attractive. sending institutions et al on an incredible hunt for returns, including frontier markets like Kenya.
  • Countries don’t want their currencies to be too strong, so they print money.

Robin Brooks and Julian Richers at Goldman Sachs expect the MSCI emerging market index to rise to 1,125 on improving data from developing economies.

John-Paul Smith at Deutsche Bank said emerging markets will lag developed nations in 2013.

The MSCI is at 13 times reported earnings, with a dividend yield of 2.7 percent, versus 1.7 percent for 10-yr Treasuries.

48 of 49 economists expect the Fed to add buying  Treasuries to its mortgage bond buying program.

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Global Economy in Twilight Zone as Stocks Suggest Growth1 – Bloomberg 09-18-12

Salient to Investors:

Joachim Fels at Morgan Stanley said:

  • It won’t take much to tip the world into a global recession
  • Central banks in Europe, China, U.K. and Japan will further ease, thereby supporting asset prices, preventing deflation, helping avert sovereign defaults and maintaining economic growth.
  • Central banks on their own cannot bring a sustainable recovery, which takes government action.
  • No matter who wins the election, the fiscal cliff is looming
  • Japan may hold early elections, and China’s leadership is changing.
  • The euro area still lacks fiscal ties as budget cuts compound recessions
  • Emerging markets are finding it tough to transform their economies.

Trevor Greetham at Fidelity Worldwide Investment said that while markets make fabulous economists, he expects a consolidation as softer data arrives in the near term.

Morgan Stanley expects a 20 percent decline in the S&P 500 to 1,167 through December. Credit Suisse expects the index will end 2012 at 1,500.

Andrew Garthwaite at Credit Suisse recommends buying, because central banks will continue to ease as long as QE benefits outweigh the costs – QE makes it easier for governments to cut debt by fanning inflation expectations and boosts growth by keeping bond yields low.

Morgan Stanley, Citigroup and PIMCO belive that the recent slowdown means growth is at a level that could suddenly evaporate into recession.

Jim O’Neill at Goldman Sachs remains a bull, saying:

  • The likelihood of another global recession remains low
  • U.S. households use record-low interest rates to pare debt
  • Home prices are signaling a bounce
  • ECB has committed to keeping alive the euro – troubled nations, including Spain, have turned more competitive
  • China is transitioning to higher quality expansion based on local consumption

Mark Mobius at Templeton Emerging Markets said Fed continuance on feeding the market until employment rebounds and ECB and Bank of Japan pumping money will be very good for stocks and emerging markets.

Srinivas Thiruvadanthai at Jerome Levy Forecasting Center believes easier monetary and fiscal policies can deliver only a contained depression by helping offset the financial volatility and balance-sheet repair that would otherwise spell a deeper slump. He predicts fragile global growth and potential instability so recommends investors stay defensive by buying U.S. Treasury securities.

Saumil Parikh at Pimco said on Sept. 12 that the longer the expansion remains lackluster, the more precarious economies become, risking cost cutting, labor shedding and inventory reductions that constitute a typical recession.

JPMorgan Chase’s international all-industry purchasing-managers’ index is close to June’s three-year low of 50.1. Corporate bellwethers FedEx has reduced its profit outlook.

Nathan Sheets at Citigroup said historically when U.S. growth slid below 1.5 percent, expansion typically dropped 3 percentage points in subsequent quarters, and growth elsewhere mapped up to 30 percent of the U.S. decline.

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