Euro Becoming Haven With Breakup a Memory on Economy: Currencies – Bloomberg 09-06-13

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The 90-day correlation between changes in the euro and a Citigroup index of bond and swaps risk has turned positive for the first time since November 2008, indicating the euro is gaining favor as investors’ perceptions of turmoil in financial markets rises. Hedge funds et al are the most bullish on the euro since 2011.

Valentin Marinov at Citigroup said the euro remains resilient and repatriation from emerging markets is playing an important role, and predicts the euro will end the year at current levels and then fall to $1.30 by June 2014. The median analyst sees the euro falling to $1.28 by year-end, and then to $1.26 by June 2014.

EPFR Global said more than $47 billion has left global funds investing in emerging-market bonds and stocks since May, and the outflow in 2013 to $7.5 billion. Outflows last week were the highest in 2 months, with record withdrawals for Mexico and Philippine equity funds.

Sebastien Galy at Societe Generale said the euro is perceived as a safe haven in the current environment, where we’re not in a G-10 crisis, but an emerging-market one. Galy said people who were wrongly very negative on the euro zone have now changed their mindsets.

CFTC data shows futures contracts signal more gains for the euro.

Economists predict Germany will grow 0.5 percent in 2013, the euro area will shrink 0.6 percent, and the US will expand 1.6 percent.

Simon Derrick at Bank of New York Mellon said that Germany might be showing positive signs, but we still have horrific numbers in peripheral Europe, so the likelihood markets will outperform starts to dwindle. Derrick said the euro may fall to $1.25 in 2013 if the Fed tapers and investors start pricing in higher interest rates.

IMF data shows the euro’s share of worldwide currency reserves remained above levels immediately after its 1999 debut: 24 percent in March 2013 versus 28 percent in September 2009 and 17 percent in September 2000.

BIS said the euro is the most widely traded currency after the dollar and accounted for 33 percent of average daily turnover in foreign-exchange markets in April, versus 87 percent for the dollar. (Foreign-exchange trades involve 2 currencies, so the sum total of percentage turnover is 200 percent.)

Niels Christensen at Nordea Bank said it is difficult to find something negative for the euro, or at least not anything that’s in focus, and when there’s more optimism about the economy, suddenly there is a positive spiral for the euro.

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Singapore Stocks Worst in Developed World: Southeast Asia – Bloomberg 09-01-13

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Investors pulled $2.2 billion from Thailand, Indonesia and the Philippines in August, versus inflows of $6.8 billion in 2012.

Wellian Wiranto at Barclays said Singapore is a barometer for Southeast Asia; choppiness elsewhere cause ripples in Singapore.

Khiem Do at Baring Asset Mgmt said Singapore’s stock market benefited from loose monetary policy in the past few years as shares offered investors attractive dividend yields.  Do said Singapore has been affected by redemptions from Asean since it’s the biggest market and is being lumped together with Indonesia, Thailand and the Philippines where capital outflows have accelerated.

Kelvin Tay at UBS said Singapore is likely to outperform, given its strong currency, resilient domestic economy, good earnings-growth potential and exposure to developed markets’ recovery. UBS said Singapore was its preferred market in Southeast Asia, upgrading its rating from neutral.

Singapore’s Straits Times Index is at 14 times estimated earnings  versus 16.1 for the FTSE Bursa Malaysia KLCI Index, 17.4 for the Philippine Stock Exchange Index, and 10.4 for Hong Kong’s Hang Seng Index.

The Straits Times Index offer an average dividend yield of 3.4 percent versus 2.7 percent for 10-year Singapore government bonds.

Daphne Roth at ABN Amro Private Banking sees little catalyst for the Singapore market to recover, and as investors begin to price in rising interest rates, Singapore’s high-yield REITs become less attractive.

Nader Naeimi at AMP Capital Investors said Singapore is getting hit from two sides: being lumped together with other Southeast Asian markets like Indonesia and the Philippines and investors selling high-yield Singapore REITs as bond yields are rising.

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Best Emerging-Market Stock Pickers Buy Drugmakers to Retail – Bloomberg 06-24-13

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Only 3 emerging-market stock pickers avoided losing money in half1 by making prescient currency bets and buying companies insulated from economic swings and government interference. They recommend Philippine retailers, Chinese Internet companies and Indian drugmakers.

Lewis Kaufman Thornburg Developing World Fund said there are many going wrong.  Kaufman is overweight Southeast Asian countries, underweight holdings in energy industry and holds no stocks in South Korea. Kaufman said the Philippines is on the cusp of an investment cycle which will filter through to the consumer part of the economy, while the Philippine peso has become attractive after depreciating 6 percent against the dollar during the past month.

Anindya Chatterjee at CNI Charter Emerging Markets Fund is overweight Asian consumer companies because the region’s expanding populations and high savings rates will spur growth even if the global economy slows. Chatterjee said in the global environment, and over the longer term, it makes more sense to focus on domestic demand driven by demography, as consumption is more durable through economic cycles.

David Semple at Van Eck Emerging Markets Fund said some of the less efficient emerging-market stocks are being found out in a world of lower growth, and the index is not a very good representation of what emerging markets have become – companies we buy can do very well, even in adverse situations. Semple is paring Chinese holdings and adding to Indian health-care stocks.

Semple, Chatterjee and Kaufman said they tend to avoid state-owned companies as slower economic growth increases the likelihood of government intervention and wasteful spending.

The MSCI emerging-markets index has trailed the MSCI World Index of developed-nation stocks by 21 percent in 2013 through June 21, the biggest gap in 15 years. The emerging-markets index is at 1.4 times net assets, the lowest level since September 2011 and 28 percent below the MSCI World Index, the biggest discount since 2005.

Eddie Perkin at Goldman Sachs Asset Mgmt said as a contrarian and believer in mean reversion, the fact that the BRIC markets have underperformed for 2 years now makes me very interested in those markets. Perkin said the BRIC and growth market countries have been left behind as the world equity markets have moved ahead and there’s really good value there.

Investors withdrew a net $18 billion from emerging-market stock funds during the past 10 weeks, Morgan Stanley wrote in a June 21 report.

John-Paul Smith at Deutsche Bank said that while the retreat in emerging markets has left stocks oversold, the longer-term outlook is still negative, and China is still very bearish for the emerging equity asset class over the medium and longer term.

The World Bank lowered its 2013 forecast for growth in China to 7.7 percent, which would be the slowest since 1999, cut developing-nation growth to 5.1 percent versus 1.2 percent for advanced economies.

Euromonitor International said consumer spending in Asian emerging markets will increase 9.2 percent on average in 2013.

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Emerging Stocks Face Significant Correction, JPMorgan Says – Bloomberg 02-21-13

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Adrian Mowat at JPMorgan said emerging-market stocks may enter a significant correction because fundamentals and technicals are weakening – investors should use options that protect against stock losses and sell equities that are most sensitive to market swings. Mowat sees no near-term changes to these conditions and expects emerging markets to continue to underperform and be a funding source for Japan. Mowat said emerging-market investors should favor quality companies with high return on equity, and is overweight shares in Turkey, India, Mexico, Indonesia, Thailand, the Philippines and Peru.

62 percent of MSCI Emerging Markets Index companies so far reporting missed analyst estimates versus 34 percent of MSCI World Index companies.

John-Paul Smith at Deutsche Bank said shrinking liquidity in China, heavier state intervention in key emerging-market economies, and a dearth of good stock ideas are the main reasons for being bearish. Smith expects a 10 to 15 percent decline for emerging markets in 2013 and more relative to the US. Smith says 2013 is the year people finally realize that the future sustainable rate of growth in China is much lower than they expect.

Bank of America says investors should buy emerging-market equities and bonds as economic growth improves in the BRICs. Analysts forecasts for 2013 suggest the MSCI emerging-market index will rise 13 percent in the next 12 months. The MSCI Index is at 10.5 times projected 12-month earnings, versus 13.7 for the MSCI World Index.

Lewis Kaufman at Thornburg Investment Mgmt said withdrawal of the global stimulus may lead to losses in emerging-market stocks as earnings growth has yet to show signs of recovery, and many companies are struggling to meet earnings expectation – there’s a bit of disconnection between the extent of the rally and underlying fundamentals. Kaufman favors stocks in Southeast Asia and the Philippines as economic growth surprises positively.

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