Emerging Markets: the love story
It is Valentine’s day and emerging markets are certainly feeling the love. Bank of America/Merrill Lynch‘s monthly investor survey shows a ‘stunning’ rise in allocations to emerging markets in February. Forty-four percent of asset allocators are now overweight emerging market equities this month, up from 20 percent in January — the second biggest monthly jump in the past 12 years. Emerging markets are once again investors’ favourite asset class.
Looking ahead, 36 percent of respondents said they would like to overweight emerging markets more than any other region, with investors saying they would underweight all other regions, including the United States. Meanwhile investor faith in China has rebounded with only 2 percent of investors believing the Chinese economy will weaken over the next year, down from 23 percent in January. China also regained its crown of most favoured emerging market in February.
Last year, the main EM index plummeted more than 20 percent as emerging assets fell from favour. So what is the reason for this renewed passion in 2012?
Firstly December’s LTRO — a multi-billion euro liquidity arrow from the cupids at the ECB has revived investor appetite for riskier emerging assets, boosting the index to around six-month highs since the start of the January. A second significant factor behind the resurgence in risk sentiment is that the market is daring once again to hope for an improvement in global growth, says Gary Baker, BofAML Global Research head of European equities strategy.
The big beneficiaries of all this have been emerging markets. It’s not just about liquidity. Clearly the actions of the ECB have been vitally important… but what you’ve also seen is an improvement in global growth optimism. If optimism over growth is improving then there may well be a more fundamental underpinning to the movement.
So is investors’ new-found love for emerging assets a passing flight of fancy or a true sign of commitment?
The significant monthly improvement in market sentiment towards emerging markets and the 44 percent level of investors overweight emerging markets are both events which have historically coincided with short-term underperformance by emerging equities, Baker says.
PIGS, CIVETS and other creature economies…
Given the ubiquity of BRICs and PIGS, it seems everyone else in the financial and business world is attempting to conjure up catchy acronyms to group economies with similar traits. All with varying degrees of success.
HSBC chief Michael Geogehan has been championing ‘CIVETS‘ to describe Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa as the next tier of developing economies poised for spectacular growth.
Evoking the skunk-like animal blamed for the spread of the deadly SARS outbreak in Asia is not exactly auspicious but then it will probably be less offensive than the porcine moniker for Portugal, Italy, Greece and Spain. The collective term — with permutations such as PIIGGS to include Ireland and Great Britain among the list of debt-ridden countries — has been denounced by politicians in Portugal and Spain.
In less troubled times, of course, these economies were often dubbed ‘Club Med’, with all its associations of sun-saturated holidays by the sea.
No such allusive qualities exist in PriceWaterhouseCoopers‘ ‘E-7′. The consultancy’s term for fast-growing emerging economies China, India, Brazil, Russia, Mexico, Indonesia and Turkey could well be the name of a face-cream or some other chemical compound.
Also carrying a hint of the pharmaceutical is ‘N-11‘ — the handy shorthand for Goldman Sach‘s ‘Next 11′ group of countries that could take their place as the world’s largest economies alongside the original BRIC giants Brazil, Russia, India and China this century.
Goldman, of course, is behind that most widely used acronym for the ‘Big Four’ of emerging economies. Others have jumped onto the bandwagon, tagging other developing economies to the original four to come up with ‘BRICK’ (‘K’ for South Korea) and the hard-to-pronounce ‘BRIMC’ (‘M’ for Mexico). Less intuitive permutations include ‘BRICA’, which includes Arab economies such as Saudi Arabia and the United Arab Emirates, and ‘BRICET’, which includes Eastern Europe and Turkey.
Why Egypt or Saudi Arabia? Mexico, Indonesia, South Korea and even the UAE I understand but not Egypt and Saudi Arabia.
from LEGACY Reuters Summits:
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