The performance of the IShares Emerging Markets MSCI ETF gives a good picture of emerging markets performance so far in 2014. After a very rocky start to the year in January/February particularly after the Crimean crisis hit Russian stocks hard, the ETF bounced over 4% in March meaning that it is up 0.33% for the year to date. As of mid-March, emerging market equity funds had experienced 21 straight weeks of outflows totalling around $13 billion, the same as the whole of the prior year, in the last 2 weeks of the month, investors started to come back to the sector.
Russian and Eastern European focused funds dominate the list of worst performers so far in 2014:
The announcement of yet more stimulus this week by the Chinese government in order to hit its 7.5% economic growth target has certainly helped shift sentiment on emerging markets after several sets of disappointing data led to fears that the country would miss this target. The last Chinese purchasing managers’ index for non-manufacturing companies dropped to 54.5 for March compared with 55 the previous month. The government said it will cut taxes on small firms and spend even more on railway construction, with a 150 billion yuan (£14.5 billion) government bond sale to finance it. As I’ve highlighted in previous articles, China seems addicted to infrastructure stimulus and the country needs to move to a more consumption driven model but so far there is limited evidence for this shift.
A further bear case for emerging markets focuses on further reductions in the Federal Reserve’s asset purchase programme and its likely elimination in 2014, a slow down in emerging markets economies and also fears of inflation. However, priced at around 11 times earnings compared with 16 for the S&P 500 optimists speak of a reasonable valuation, but they have traded as low as 7 to 8 times trailing earnings back at the lows in 2008 and 1997-98.
Certainly the sell off early in 2014 looked to be a good time to re-enter emerging markets and despite a less accommodative Federal Reserve driving liquidity into emerging markets the sector looks to have been oversold on fears of conflict in the Ukraine and a wobbling China. For now the Chinese government seems to be ready to do whatever it takes to hit its self imposed 7.5% growth target.
Contrarian Investor UK
IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.
by contrarianuk
Emerging markets back to positive territory after strong rebound
Apr 3, 2014 at 8:48 am in Market Commentary by contrarianuk
The performance of the IShares Emerging Markets MSCI ETF gives a good picture of emerging markets performance so far in 2014. After a very rocky start to the year in January/February particularly after the Crimean crisis hit Russian stocks hard, the ETF bounced over 4% in March meaning that it is up 0.33% for the year to date. As of mid-March, emerging market equity funds had experienced 21 straight weeks of outflows totalling around $13 billion, the same as the whole of the prior year, in the last 2 weeks of the month, investors started to come back to the sector.
Russian and Eastern European focused funds dominate the list of worst performers so far in 2014:
The announcement of yet more stimulus this week by the Chinese government in order to hit its 7.5% economic growth target has certainly helped shift sentiment on emerging markets after several sets of disappointing data led to fears that the country would miss this target. The last Chinese purchasing managers’ index for non-manufacturing companies dropped to 54.5 for March compared with 55 the previous month. The government said it will cut taxes on small firms and spend even more on railway construction, with a 150 billion yuan (£14.5 billion) government bond sale to finance it. As I’ve highlighted in previous articles, China seems addicted to infrastructure stimulus and the country needs to move to a more consumption driven model but so far there is limited evidence for this shift.
A further bear case for emerging markets focuses on further reductions in the Federal Reserve’s asset purchase programme and its likely elimination in 2014, a slow down in emerging markets economies and also fears of inflation. However, priced at around 11 times earnings compared with 16 for the S&P 500 optimists speak of a reasonable valuation, but they have traded as low as 7 to 8 times trailing earnings back at the lows in 2008 and 1997-98.
Certainly the sell off early in 2014 looked to be a good time to re-enter emerging markets and despite a less accommodative Federal Reserve driving liquidity into emerging markets the sector looks to have been oversold on fears of conflict in the Ukraine and a wobbling China. For now the Chinese government seems to be ready to do whatever it takes to hit its self imposed 7.5% growth target.
Contrarian Investor UK
IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.