Will Last Week's Relief Rally In Emerging Markets Last?

Stocks in emerging markets posted their best weekly gain in nearly four years last week. Analysts are divided over whether this is a dead-cat bounce or the start of an enduring mean-reversion trade in the wake of nearly non-stop declines since last April. From the perspective of the week just passed, however, there's no doubt that equity markets in so-called emerging countries enjoyed a powerful rally for the five days of trading through Oct. 9.

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New Emerging-Market Woes

One of the last havens in emerging markets is showing signs of strain.  Companies in emerging markets issued trillions of dollars of foreign-currency bonds during the decade long commodity boom, and took advantage of low interest rates in the developed world following the 2008 financial crisis. Now, many investors fear the commodity bust will lead to a rise in defaults that could deepen economic slumps in many of these nations.  Until a few months ago, emerging-market corporate bonds were regarded as a haven amid the routs that had hit stocks and currencies in many developing countries because the bonds are typically issued in the U.S. dollar and by companies with robust growth and credit profiles.

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Turmoil in Emerging Markets Tests Resilience of US and Europe

The most important question confronting investors is whether the United States and Europe will remain insulated from the economic turmoil that is now sweeping through the emerging markets.  Janet Yellen, who chairs the US Federal Reserve, is confident that the prospects for the world's largest economy "appear solid", clearing the way for an interest rate rise by the end of the year.In a speech last Thursday, Dr Yellen acknowledged that the Fed was keeping a close eye on what she described as "developments abroad", before adding that that "we do not currently anticipate that the effects of these recent developments on the US economy will prove to be large enough to have a significant effect on the path for policy".

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Smarter Way to Play an Emerging Market Rebound

Emerging market funds – targeting shares in fast-growing Asian and South American countries – have delivered losses averaging 12pc over the past three years.  Much of the damage occurred in recent months as anxiety about the strength of economic growth rocked the markets. An upward move in US interest rates – which did not materialise last week, but will eventually arrive – is expected to knock these regions further.  Heavy commodity price falls, which have also depressed emerging market currencies, show no sign of reversing.

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Bargains in Emerging Markets Can Be Risky

As emerging markets reel from their worst selloff in years, some investors are picking through the ruins, convinced that the massive slide in stocks and bonds has uncovered rare opportunities to buy on the cheap.  Their shopping list includes Mexican bonds, Philippine banks and Chinese Internet companies. The key, they say, is to be selective—while bargains abound, many believe that emerging markets remain fraught with peril.

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China and Emerging Markets Capital Crisis That Wasn’t

New figures from China’s central bank point to large, but not crippling, outflows  The end-of-summer meltdown in emerging markets, when the MSCI stock benchmark collapsed by 9% in August, created a bigger fear than just stock losses—chiefly that emerging countries are experiencing crippling capital outflows.

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Emerging Markets Offer Growth Opportunties

As defense budgets face downward pressure in the US and Europe, emerging markets are poised to spend more than a trillion dollars on defense over the coming decade, creating business opportunities for Western defense firms.A recent Frost & Sullivan analysis of 10 emerging markets concluded that between 2015 and 2025, emerging markets in Southeast Asia, South America, the Middle East and elsewhere would spend more than $1.2 trillion on defense. Over that period, military expenditures in Colombia, Kuwait, Malaysia, Morocco and Singapore are expected to see 3.6 percent compound annual growth rate, while Angola, Azerbaijan, Peru, Qatar and South Korea can anticipate a CAGR of 2.8 percent.

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Emerging Market Turmoil Isn't Too Bad

Emerging markets are in free fall. Currencies are reeling, stocks are tanking and commodities are sinking, evoking memories for many investors of the financial crisis that hit Asia hard in 1997 and 1998.  Concerns over a slowdown in China have dented confidence, while investors have also fretted over the impact on emerging markets of an imminent increase in interest rates by the U.S. Fed.

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Got China? Two Big Emerging Market ETFs

The two leading exchange-traded funds focusing on emerging markets have very different exposure to now-vulnerable Chinese stocks and will probably diverge further, a new analysis by S&P Capital IQ shows.The Vanguard FTSE Emerging Markets Stock Index ETF recently had 28 percent of its assets invested in China, while Blackrock Inc's iShares MSCI Emerging Markets ETF had 24 percent, even though both are index-following broad emerging markets funds. Chinese stocks fell 6 percent on Tuesday, and further weakness in both that market and China's economy could play out very differently in these two funds.

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Investors Should Stick With Emerging Markets

These are strange times in the investment world and indeed the whole global economy, when many of the certainties that have driven stock and bond prices over the past decade and more appear to have been thrown out of the window.  On this side of the world, we are seeing vast sums flowing into European markets, particularly fixed income. As I write, the five-year German bund is yielding a whole 0.07pc, hardly the type of return that you could build a pension pot on. 

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