Investing In Emerging Markets: February 2007

Monday, February 26, 2007

Merrill Lynch & Co. said 11 out of 16 emerging market currencies are on average 19 percent undervalued against the U.S. dollar.

The bank said undervalued currencies are in Argentina, Brazil, Chile, China, Hungary, South Korea, Malaysia, Mexico, Poland, Russia and Singapore. The other five currencies Merrill evaluated are overvalued by an average of 12 percent. They are in India, South Africa, Taiwan, Thailand and Turkey.

Thursday, February 22, 2007

The Shanghai Composite Index remains near all time highs. This 6 Month chart shows the explosive price appreciation as China continues to experience unprecedented growth.

Wednesday, February 14, 2007

Fund managers are reducing exposure in China and India, where tightening concerns are rising, and investing more assets in Taiwan, Korea, and Thailand, according to Merrill Lynch's latest monthly survey of Pacific Rim fund managers.

"Within the region, the most notable shift is from China to other North Asian markets, as investors anticipate further Chinese tightening measures after the lunar New Year," said Willie Chan, a strategist at Merrill Lynch.

Twenty-three percent of investors said they expected the Chinese economy to get a little weaker over the next 12 months, while 58% expect it to stay the same.
In contrast, Taiwan, a self-governing island which China considers part of its territory, has become the favorite market of managers in the region. A net 25% of fund managers surveyed said they'd increase exposure to Taiwan, up from 21% in January.

Taiwan and South Korea both recorded more than $1 billion in foreign net inflows last month.

Saturday, February 10, 2007

Emerging markets bonds traded in a very tight range on Thursday, with prices posting slight gains on the back of investors' steady appetite for risk.

A rise in U.S. Treasury bonds also supported the market, while Venezuela's bonds received an extra boost from a $2.00 rise in U.S. oil prices.

The benchmark JP Morgan's EMBI+ index <11emj>, which measures emerging debt returns, edged 0.05 percent higher while Brazil's global bond due in 2040 , the most liquid of its asset class, gained 0.063 point to be bid 132.813.

"Both the local and the dollar markets were well bid today. There was some sell-off earlier but the buyers quickly came in on the dips," said Louis Cesario, head of fixed-income trading at Hamershlag Dodeles, a New York-based brokerage.

"I still believe we are heading higher in price, but some are still a bit shy here," he added.

Emerging market bonds have been trading with little price oscillation this week, as investors consolidate recent gains in the absence of any important U.S. economic data.

Spreads over U.S. Treasury bonds, a key measure of investors' aversion to risk, widened 1 basis point to 171 bps, still close to an all-time low of 165 bps, according to the EMBI+.

Venezuela's bonds gained 0.2 percent and the country's risk spreads tightened 1 basis point as U.S. crude prices jumped $2.00, increasing prospects of higher government revenues in the oil-exporting nation.

Ecuador's risk spreads tightened 19 basis points to 799 bps after widening 34 basis points during the past four sessions. The country's debt remains one of the most volatile in Latin America as investors await clarification about President Rafael Correa's plan to restructure the country's debt.

Investors are particularly interested on whether Ecuador will meet a $135 million coupon payment on its global bond maturing in 2030. The payment is due on Feb. 15 but Ecuador has a 30-day grace period to fulfill it.

Thursday, February 01, 2007

Between the end of 2002 and the end of last year, the Morgan Stanley Capital International (MSCI) emerging markets index had a total dollar return of 240 percent, or an average rise of 36 percent a year. That compares with a 73 percent total return for the Standard & Poor's 500 index and 108 percent for Japan's Nikkei.

And Michael Hartnett, the head of emerging markets strategy at Merrill Lynch, says that by historical standards, the four-year surge is still young. From late-1973 to mid-1983, US small-cap stocks rose 31 percent a year on average. In the 1970s and 1980s, Japanese stocks rallied an average 24 percent a year for 12 years.

"Emerging markets are in the midst of one of the great bull markets," he says. "Their massive savings and current account surpluses can boost economic growth and asset prices for many years to come."

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