Emerging beats developed in 2012

March 1, 2012

Robust growth from the emerging market basket in January was always going to be tough to beat, but research from February’s gains show just how strong these markets are performing against developed ones, and not just from the traditional BRICs either, research from S&P Indices shows.

Egypt has been a prime example. Following a bout of political unrest and subsequent removal of Hosni Mubarak after nearly 30 years in power, Egypt’s market returns have rocketed, climbing 15.3 percent in February on top of January’s 44.3 percent take-off.

Thailand, Chile, Turkey and Colombia are also on the to-watch list as these emerging lights have all flashed double-digit returns in the first two months of this year, while all twenty emerging markets included in the S&P data were up, gaining an average of 6.62 percent, making gains in the year-to-date a mouth-watering 18.95 percent.

Compare that with developed market returns of 4.6 percent in February, led by Nordic countries in particular Norway with (13.8 percent) in February, Denmark (13.5 percent) and Sweden (10.2 percent).
Yet returns in developed markets were dragged down by Israel (-1.9 percent) and Greece (-2 percent). Overall developed markets grew 10.3 percent in the first two months of the year.

So taken together – equity markets have gained $1.6 trillion in February, which when added to January’s bullish run, clawing back all $3 trillion worth of losses in 2011 leading to the best start the S&P 500 has had since 1987.

Optimism should be checked, however. High oil prices supported by geopolitical pressure at the prospect of an Israeli strike on Iran’s nuclear facilities and subsequent knock-out of a 3.5 million barrel per day production of crude oil could start to have a negative effect on markets, while Europe still faces high levels of debt and the challenge of reducing deficits, which could create a drag on the growth of emerging economies.

S&P says:

Oil prices will likely start to come into play soon, as higher prices to importing counties start to have an impact. Additionally, while the immediate Greek financing deal has been addressed, longer-term problems continue, and austerity programs still need to be implemented, which will likely have a negative impact on the economy.

For now at least, emerging market investors will be enjoying the rally as it builds bric by bric and beyond.

(Writing by Philip Baillie)

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