Home' Trinidad and Tobago Guardian : February 22nd 2015 Contents SBG10 STOCKS
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt FEBRUARY 22 • 2015
What s the one
thing that makes
China just like
Qatar and in
OK, that s a trick question. The three
economies don t have much in common,
except that they re all members of a group
called the emerging world. But for years, many
investors made little distinction between them
and other emerging markets. And it didn t
matter much that they did. Stock and bond
markets across emerging markets often moved
together, swinging up and down in concert.
But emerging markets are increasingly mov-
ing to their own rhythms. Chinese stocks have
jumped almost 14 per cent over the last year,
for example, while Brazilian stocks have sunk
by nearly the same amount in dollar terms.
The diverging fortunes mean one person s
emerging-market mutual fund can have much
different performance than another s, depend-
ing on how they re constructed.
"Everyone thinks of the emerging markets
as this monolith," says Martin Schulz, manager
of the PNC International Equity fund. "I often
hear, What do you think about emerging mar-
kets? And I say, It depends. Which emerging
markets are you talking about? "
To see how performance has become more
varied, look at the 23 countries that make up
the MSCI Emerging Markets index. It s a widely
used benchmark for emerging-market stock
funds, and its components stretch from Chile
to the Czech Republic to China.
In 2011 the general trend was down, and
stocks in all but two of the index s markets
fell. That same year, every mutual fund tracked
by Morningstar that invested in a broad range
of emerging markets had losses.
In 2012 the trend went in the opposite direc-
tion. All but four of the index s component
markets rose, and every emerging-market
stock mutual fund but one made gains.
The performance chart has since become
much more scattered. Over the past year, 10
of the index s stock markets are up, and 13 are
down. Among mutual funds, the top performer
has returned 18 per cent, while the weakest
has lost 16 per cent.
What s behind the split?
One big factor is the sharp drop in prices
for commodities. Crude oil is trading around
US$50 per barrel, down from more than
US$100 during the summer. Copper fell last
month to its lowest price since the summer
That is hurting countries that are big
exporters of commodities. Stocks in Russia,
the world s second-largest oil exporter, have
sunk 32.8 per cent over the past year. In Chile,
the world s biggest producer of copper, stocks
are down 9.4 per cent.
Cheaper commodities, though, mean an
economic boost for countries that are net
importers and helped to boost stock prices in
China and elsewhere.
Politics have also been a big driver. Russia
is struggling not only with falling oil, for exam-
ple, but also with worries about tensions in
Ukraine. India, meanwhile, is seeing the benefits
of political change.
Investors are hopeful that Prime Minister
Narendra Modi, who was elected last year, can
push through economic reforms to invigorate
the world s second-most populous country.
Indian stocks have surged 37.6 per cent over
the last year.
The divergence in performance has also led
to a split in where dollars are heading. Indian
stock mutual funds and exchange-traded funds
have attracted US$4.2 billion over the last year,
for example. That s nearly half of the US$9
billion that the category controls collectively.
Latin American stock funds, meanwhile,
have had net withdrawals of US$408 million.
Funds that invest in a diversified mix of emerg-
ing markets have attracted a net US$18.2 bil-
It s not just stocks that have had a divergence
in performance for emerging markets. Bonds
are getting affected too, which is pushing man-
agers to get choosier in how they invest.
Commodity prices are again a big driver.
Russia s foreign-currency credit rating was
cut to "junk" status last month by Standard
& Poor s, which said further downgrades may
be on the way given weakened prospects for
Moves in the currency market are also cleav-
ing winners from losers. The dollar s value has
rallied to its strongest level in years against
other currencies given expectations that the
Federal Reserve will raise interest rates later
A stronger dollar means interest payments
made by bonds in other currencies become
less valuable. Some emerging-market bonds
are denominated in their respective currencies,
and they ve broadly seen losses recently.
Emerging-market bonds denominated in dol-
lars, meanwhile, have broadly seen gains.
"We still think it s an interesting market,"
says Olga Yangol, a senior emerging markets
debt product specialist at HSBC.
"You just have to approach it differently
from what was the norm in the past. It will
be much less about the asset class as a whole
than about what goes on in each individual
Mixed-up world of investing
in EMERGING MARKETS
After years of moving in chorus, emerging markets are finding
their own, individual rhythms
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