Exotic locations prove a strong draw for investors
Thursday, 3 January 2008
Aline van Duyn
INVESTORS who put money into stock markets in Brazil, India, China and numerous other emerging markets can certainly afford to pop a few champagne corks now at year-beginning.
In dollar terms, the gains on some of these equity markets exceeded 70 per cent. By contrast, the US equity market is up only in the single digits for the year, registering gains of 6.0 per cent for 2007 so far, according to the FTSE index for the US market.
With uncertainty about the economic outlook for the US and questions about how much further the repercussions of the subprime mortgage-induced credit crisis will spread, predictions for 2008 are less certain. In the last weeks of December, for example, indices in Latin America in particular fell sharply, leading to doubts about whether these markets would continue to be immune from the turmoil that has gripped the US and Europe.
"There has been a lot of talk in recent months about the decoupling of the US and emerging market economic cycles," said Cameron Brandt, senior analyst at Emerging Portfolio Fund Research (EPFR), which tracks investments by US investors.
"The more bearish investors are beginning to think that this decoupling theory is going to have to walk the walk next year as the US economy struggles with the current credit squeeze," he said.
There are few signs, however, that investors are worrying about this yet.
Emerging market equity funds measured by EPFR have had record inflows of $40bn so far in 2007- almost twice the level of last year and the year before, and lifting total assets held in the funds to about $830bn.
The flows were driven, as usual, by performance. Emerging market stock markets rose strongly as companies in the developing world saw big gains. China Mobile and Brazilian Petroleum, for example, each rose by 100 per cent in value during the year.
Meanwhile, investors during the year pulled $57bn from US equity and Japan equity funds as they reallocated their money to emerging markets.
Many continue to sit on the sidelines, however, with nearly $200bn held in cash in money market funds.
Some of the strategies for 2008 are expected to focus on trades which take advantage of the increased volatility that has been a feature of equity markets in 2007 and which is expected to remain a characteristic in 2008.
Axa Rosenberg, an asset management company, surveyed nearly 200 fund managers and consultants and found that investors in all regions expected equity market volatility to be higher in the next 12 months.
It found that 67 per cent of US investors, 45 per cent of UK investors, 75 per cent of Australian investors and 58 per cent of Japanese investors were anticipating higher volatility.
"If predictions for a challenging economic environment and continued heightened volatility come to pass, investors who refocus their attention on stocks with sound fundamentals and porfolio risk control are likely to be rewarded," said Stephane Prunet, global chief executive officer at Axa Rosenberg.
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FT Syndication Service
INVESTORS who put money into stock markets in Brazil, India, China and numerous other emerging markets can certainly afford to pop a few champagne corks now at year-beginning.
In dollar terms, the gains on some of these equity markets exceeded 70 per cent. By contrast, the US equity market is up only in the single digits for the year, registering gains of 6.0 per cent for 2007 so far, according to the FTSE index for the US market.
With uncertainty about the economic outlook for the US and questions about how much further the repercussions of the subprime mortgage-induced credit crisis will spread, predictions for 2008 are less certain. In the last weeks of December, for example, indices in Latin America in particular fell sharply, leading to doubts about whether these markets would continue to be immune from the turmoil that has gripped the US and Europe.
"There has been a lot of talk in recent months about the decoupling of the US and emerging market economic cycles," said Cameron Brandt, senior analyst at Emerging Portfolio Fund Research (EPFR), which tracks investments by US investors.
"The more bearish investors are beginning to think that this decoupling theory is going to have to walk the walk next year as the US economy struggles with the current credit squeeze," he said.
There are few signs, however, that investors are worrying about this yet.
Emerging market equity funds measured by EPFR have had record inflows of $40bn so far in 2007- almost twice the level of last year and the year before, and lifting total assets held in the funds to about $830bn.
The flows were driven, as usual, by performance. Emerging market stock markets rose strongly as companies in the developing world saw big gains. China Mobile and Brazilian Petroleum, for example, each rose by 100 per cent in value during the year.
Meanwhile, investors during the year pulled $57bn from US equity and Japan equity funds as they reallocated their money to emerging markets.
Many continue to sit on the sidelines, however, with nearly $200bn held in cash in money market funds.
Some of the strategies for 2008 are expected to focus on trades which take advantage of the increased volatility that has been a feature of equity markets in 2007 and which is expected to remain a characteristic in 2008.
Axa Rosenberg, an asset management company, surveyed nearly 200 fund managers and consultants and found that investors in all regions expected equity market volatility to be higher in the next 12 months.
It found that 67 per cent of US investors, 45 per cent of UK investors, 75 per cent of Australian investors and 58 per cent of Japanese investors were anticipating higher volatility.
"If predictions for a challenging economic environment and continued heightened volatility come to pass, investors who refocus their attention on stocks with sound fundamentals and porfolio risk control are likely to be rewarded," said Stephane Prunet, global chief executive officer at Axa Rosenberg.
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FT Syndication Service