What The Experts Are Saying About Emerging Markets Part 2

Regional Performance:

Asia (Ex-Japan): Asian equities have outperformed mature markets in 2009 thanks to continuous foreign institutional investor inflows amid diminishing risk-aversion among global investors and relatively resilient macroeconomic fundamentals. Markets had gained 46% YTD as of August 31 (78% since October 2008) with India (68%) and Indonesia (75%) the best performers, and China (39%) and Malaysia (36%) the laggards. Sri Lanka posted an exceptional 131% gain due to the end of a 26-year civil war, a US$2.5-billion loan agreement with the IMF and the government's positive stance on reforms and liberalization. Asian markets have recovered 54% of the losses incurred in 2008 (peak to trough, down 59%).

Latin America (LatAm): LatAm equities has outperformed the other emerging markets' regional indexes by rising 59% YTD to August 31 (99% since it hit bottom in November 2008), with strong performances in Brazil (71%) and Colombia (55%). The laggards are Argentina (41%) and Mexico (34%). Overall, LatAm equities market have recovered 46% of the 2008 crash, after falling 68% peak to trough.

Eastern Europe, Middle East and Africa: Equities market went up 42% YTD to the end of August and 77% since reaching bottom in March 2009. Turkey (66%) and Russia (59%) lead the mark, while Morocco (-3%) and South Africa (16%) have underperformed. Eastern Europe, Middle East and Africa stock markets have recovered 39% of the sharp correction induced by the global crisis, after falling 66% peak to trough.

Recent EM market Dynamics:

• Emerging-market stocks ended higher on November 18, heading for their highest level in 15 months. The gap on yield for developing vs. developed country debt fell due to higher commodity prices and speculation that the U.S. would keep low interest rates until 2012. David Spegel, the head of emerging market strategy at ING Financial Bank NV in New York, says there is “some positive sentiment and upside favoring for high beta countries…Investors are expecting that the Fed will remain on hold for a long time and recognize it as a buying opportunity.” (Bloomberg, 11/18/09)
• WB President Robert Zoellick says the U.S. has a limited ability to stop the USD decline, while IMF head Dominique Strauss-Kahn says the USD has fallen within a normal range, proving resilient to the crisis. Asian authorities “expressed concern that the global stimulus, especially the flood of liquidity pumped out by central banks, could create asset bubbles and inflation, such as in commodities.” (WSJ, 11/14/09)
• According to Citi, "Latin American stocks face the risk of a rebound in the U.S. dollar, in the middle of which could be the region’s steepest rally in almost two decades. The biggest fundamental risk of a decent correction in regional equities is, therefore, a bounce in the dollar…As markets enter 2010, the timing of the first Fed move will come closer and the dollar could bounce, triggering a more severe correction in regional equities." LatAm equities are more likely to suffer a correction early in 2010 than at the end of this year. Citi reiterated its preference for Brazilian over Mexican equities. In the face of debt downgrade risk, Mexican stocks are "underweight." (Bloomberg, 10/27/09)
• Developing-nation stocks headed for a steep three-day slide as concern mounted that central banks may rein in stimulus spending and companies reported lower profits. The MSCI Emerging Markets Index dropped 2%, reaching an accumulated retreat of 4.1% during the week. Stocks in Russia, Turkey, Hungary and Indonesia fell more than 2% while the suffering of large companies in South Korea and Poland was felt in their indexes. During 2009, the MSCI measure for emerging-market equities has rallied 64% as governments pumped about US$12 trillion to spur growth and as signs of recovery drew investors to higher-yielding assets. (Bloomberg, 10/28/09)
  
• "Equity fund inflows into the BRICs have reached US$32.3 billion this year (US$10 billion above 2006). Brazil has been the best performer as equity investors have pumped in US$2.44 billion in October (nearly double that of China at US$1.3 billion) due to its position as one of the world largest commodity producers, strong growth in China and the broader optimism about global economic recovery. The strong data in the developing world and a growing view among investors that these markets are likely to offer the biggest returns as their economic growth outpaces the west have attracted US$63.1 billion in inflows this year. This compares with outflows of US$75.6 billion in developed world equity funds." (FT, 10/23/09)
  
• After India withdrew its monetary stimulus and increased its inflation forecast, emerging-market stocks fell the most in seven weeks as the MSCI Emerging Markets Index declined 1.3%. The yen rose as investors sought refuge. The Shanghai Composite Index decreased 2.8%, the steepest decline among benchmark equity indexes worldwide, after an early drop in metal prices. (Bloomberg, 10/27/09)
  
• Market correction is expected this year as China and other countries cut stimulus funding, since the rally in global markets is basically liquidity-driven, says Peter Westin, the chief strategist at Aton LLC. Earlier in October, Bloomberg reported that investors were throwing money into the riskiest emerging markets at a remarkable pace, buying as if the global financial crisis was over. Emerging-market funds have absorbed more than US$40 billion so far this year, according to fund tracker EPFR Global. "That means that last year's outflow of US$40.1 billion has been completely erased," said Andrew Howell, an emerging-markets strategist at Citi. "We tend to get nervous when inflows surge, suggesting excessive optimism. However, at this point it seems early to get too worried." (Bloomberg, 10/22/09, 10/13/09)
  
• "For veteran emerging-market investor Mark Mobius and executive chairman of Templeton Asset Management... China remains the biggest investment destination for emerging-markets funds...Asia and emerging markets overall remain 'solid long-term investment opportunities.' " However, he recommends caution when it comes to short-term investment due to high volatility in today’s markets. (WSJ, 09/30/09)
  
• Emerging markets now are "too large to be ignored," despite the misconception that emerging economies have small, illiquid and volatile financial markets. Their market capitalization now represents 30% of the world’s market capitalization (as much as that of the U.S.), 50% of the global economy and the world’s top growth prospects, though they have only a 12% share in the MSCI All Country World Index. (FT, 09/28/09)
  
• "Developing-nation equities capped their steepest weekly decline in more than two months on mounting concern that a rally has outpaced economic growth after an unexpected drop in U.S. home sales and factory orders." Markets have not corrected and the economy showed a disappointing reaction to stimulus, says Marc Faber, the publisher of the Gloom, Boom & Doom report. (Bloomberg, 09/25/09)
  
• According to a Reuters report, Latin American stocks reached a new 2009 high on September 22, 2009, while Brazil's currency rose to the highest level in a year after the improvement of the country's ratings. Brazil's real strengthened 1% to 1.799 per USD, its strongest since exactly a year ago. The LatAm stock index rose 1.02% to 3,643.10, and the broader emerging markets' stock index added 1.27%. One day earlier, Bloomberg reported that stocks from developing-nations dropped 0.9% after trading at the highest level relative to profits since 2000, according to the MSCI Emerging Markets Index.
  
• "Emerging market stocks contracted the most this month after Chinese companies reported worse than expected earnings and Russia's economy contracted by a record amount, creating concerns about an economic recovery. The MSCI contracted 1.4%. On August 3 the MSCI closed above 855.47 on for the first time since the collapse of Lehman Brothers in September, as speculations of an easing to the global recession were bolstered by a positive report on U.S. manufacturing and rising commodity prices. In Asia, stock indices were supported by better than expected earnings from energy producers due to higher oil prices." (Bloomberg, 08/13/09)
• "Moody's reiteration...of Mexico's existing sovereign credit rating (Baa1), with a stable outlook, does not alter Citigroup's view that the risk of a ratings downgrade is a threat to Mexican equities later this year. Accordingly, the positive market action in response to the Moody’s announcement (including a rally in the peso through P$13.00/dollar) may be overdone." (Citi, 08/12/09)

p/s photos: Sharon Xu

Rediscovering k.d. lang

About 15-20 years ago, I had a decent collection of k.d. lang (thats how she writes her name, all in lower case), and then some friends came over and gushed over them and borrowed them. As in most things borrowed by friends, you never see them again. I was in New York last week and discovered my kind of candy store, it was a place called Bookoff - they sell second hand books, cds, dvds ... the difference being, they cleaned everything up first, even the cds, so the quality is as good as new. I went there twice in a week and spent hours poring over everything they have. How to beat $3 for a cd or $5 for a dvd, not pirated you know. I think I bought over 80 cds and 10 dvds. There among the ruins, they categorise according to the artiste's name, so it was easy, was a whole row of k.d. lang - I was estatic, grabbed the whole 4 albums taken from me before. I did that as well when I came across David Benoit and Malta, now that's what I call shopping.

Listening to kd lang again after such a long time, wow, she is still fantastic. She is basically a country singer but with genuine talent for harmonies and melodies. If you haven't heard of her before, go and have a listen and be mesmerised. She is like Patsy Cline updated for her times. Her full name is Kathryn Dawn Lang. I cannot describe her voice better than the music critic from New York Post who once said: "Few singers command such perfection of pitch. Her voice, at once beautiful and unadorned and softened with a veil of smoke, invariably hits the middle of a note and remains there. She discreetly flaunted her technique, drawing out notes and shading them from sustained cries into softer, vibrato-laden murmurs."

Enjoy... her music reminds me of ice teas, sitting on the verandah in the afternoon, watching the sunset ...aahhh...

What The Experts Are Saying About Emerging Markets Part 1

As of mid-October, the MSCI Emerging Market Index had gained 68% YTD, while MSCI global equities had increased 24%. Overall, emerging market asset classes have been supported by high global liquidity, improvements in risk appetite, falling core markets volatility (VIX), rebounding commodity prices and relatively stable fundamentals in comparison with past episodes of crisis. Moreover, emerging market countries' policy responses to the crisis has been relatively aggressive, planting the seeds for positive domestic demand. Plus, corporate earnings have been better than expected. Since reaching bottom in November 2008, emerging market equity markets have jumped 105%.

Downside risks remain in place due to uncertainties about the shape of the global recovery (V, U, W, V+U or inverted square root), the strong U.S. dollar (USD), higher U.S. Treasury yields, profit-taking and revival of global risk aversion. Moreover, miscalculations on the implementation of exit strategies around the globe post a significant risk. In September, emerging market equities jumped 12.7%, after declining 0.8% in August (+14.6% in July), lead by Latin America (20%) and Asia ex-Japan (10.8%). Equity markets in Europe, the Middle East and Africa increased 8% as positive news about the global economy continued supporting risk appetite. In the same month, world markets increased 6.6% versus 8.8% in July.

Outlook:

• Mark Mobius, chairman of Templeton Asset Management Ltd., reckons that emerging-market economic growth will be about zero this year, compared to a contraction of almost 4% in developed economies. He also said stocks in the BRIC nations--Brazil, Russia, India and China--are likely to rise by 30-40% in the next three to four years. (Bloomberg, 11/18/09)


• WSJ Columnist Jason Zweig: "Vinicius Silva, an analyst at Morgan Stanley, calculates that emerging markets are trading at 12.9 times their expected earnings over the next year. Since 1993, that average has been 12.8 times earnings. Emerging markets as a whole are neither a bubble nor a bargain." (11/10/09)


• According to Morgan Stanley (MS), the MSCI Emerging Markets Index might gain 25% by the end of 2010 and finish at 1,200, the highest two-year rally since 1989. Also, they have increased the forecast for 2010 profit growth in emerging markets to 40% (from an initial 28%). (Bloomberg, 11/10/2009)


• Dr. Nouriel Roubini said on October 4 that the current "party" on emerging markets and markets in general could continue for another six months but will eventually end ugly, as much of the rise in asset prices since March is another bubble created by a huge pool of global liquidity. "I'd argue that rally has been too much, too fast," Roubini said at the Inside Commodities conference at the NYSE. "If we have a V-shaped recovery, then it's justified and assets can rise further. But I believe we'll have U-shaped recovery, in which case those assets could move sideways or they could correct." (WSJ, 11/04/09)
• Dr. Nouriel Roubini said on October 4 that the current "party" on emerging markets and markets in general could continue for another six months but will eventually end ugly, as much of the rise in asset prices since March is another bubble created by a huge pool of global liquidity. "I'd argue that rally has been too much, too fast," Roubini said at the Inside Commodities conference at the NYSE. "If we have a V-shaped recovery, then it's justified and assets can rise further. But I believe we'll have U-shaped recovery, in which case those assets could move sideways or they could correct." (WSJ, 11/04/09)


• According to Arnab Das of Roubini Global Economics, emerging markets will extend their biggest rally in a decade as investors borrow dollars to buy stocks, bonds and currencies in the world’s fastest growing economies. Investors should take “overweight” positions in developing-nation assets, said Das, the London-based head of market research and strategy at RGE. The flow of U.S. dollars in emerging markets “is based on better fundamentals for the near term than the G10” through “better growth prospects because of structural reforms and ongoing integration into the world economy,” Das said. (Bloomberg, 11/04/09)


• According to Allan Conway, head of emerging market equities at Schroder Investment Management, there is room for further gains in emerging-market stocks in the next 1-2 years. Emerging nations will represent 70 to 75% of global growth for the “foreseeable future.” The BRIC countries are at an “early stage” of development that will accelerate, creating demand with rising disposable income for 2.9 billion population. (Bloomberg, 10/13/09)


• According to Michael Wang, emerging markets strategist at Morgan Stanley: “Previously, emerging markets were seen as a geared play on developed markets because of their dependence on exports. But this is different. Asia and Latin America haven’t had the fundamental problems in the banking sector that the developed world has had, so lending and credit growth has resumed rapidly and this is helping drive growth.” However, Mr Wang pointed out that “There is the possibility of an incipient asset bubble, particularly with regard to China, but that is not our base case scenario, which is still for them to go higher”. (FT, 08/03/09)
• "Research by Société Générale's cross asset team argues it is time to sell because the price-to-book value of emerging-market stocks is now higher than those in the developed world. The only other time this valuation measure was at a premium to that of the developed world was from mid-2006 to mid-2007. Emerging-market equities fell by two-thirds in the 12 months to the start of November 2008. (WSJ, 07/27/09)
• According to Citi equity strategists Geoffrey Dennis and Jason Press, “The correction in regional equity markets has reached the expected 10-15% range...Although the mood has turned sour on worries over the timing of economic recovery, there is little more downside from here and we expect regional markets to break out to the upside again later this summer.” (06/24/09)
• Jonathan Garner, the chief Asian and emerging market stategist for MS, wrote in a research note that "the MSCI Emerging Markets Index may climb to 985 by June 2010 from its closing price of 743.72 on June 18....Profits will rebound 28% next year after a 15% slide in 2009." Earlier, Garner forecast a 20% gain in 2010 and a 25% drop this year. (Shiyin and Paterson)

p/s photo: Yuriko Shiratori

Immigration To Australia & Travel By Australians

The following article from Sydney Morning Herald revealed interesting trends on immigration to Australia, plus the robust Aussie economy has sharply boosted overseas travel by Australians as well:

China has become Australia's biggest source of migrants, for the first time eclipsing the traditional main points of origin, New Zealand and Britain.

The latest migration figures show a record 6350 settlers arrived from mainland China in the four months to October, more than the 5800 who arrived from Britain and the 4740 who came from New Zealand.

The new Chinese ascendancy owes more to a collapse in migration from the traditional sources than it does to the 15 per cent annual growth in migration from China. The number of migrants from Britain is down 28 per cent over the year and the number from New Zealand is down 47 per cent.

An Adelaide University demographer, Graeme Hugo, said the global financial crisis had hit migration from traditional sources in ways that hadn't much affected China.

In March the Government sliced 18,500 off the skilled migration program for 2009-10, disproportionately hitting Britain for which skilled migrants account for eight out of 10 flights booked. Chinese migration, dominated by family reunions, suffered less.

Professor Hugo said New Zealand migration collapsed as people decided to hang on to their jobs. ''Just as someone from Adelaide is likely to try to hang on to their job in the global financial crisis rather than move to Sydney or Melbourne to take their chance at a time of tightening employment, I think that would be the case in Auckland as well,'' he said.

''It's an immediate response. New Zealanders don't need to apply to immigrate. There's no pipeline - that's why the response is so big.''

Figures for short-term arrivals, also released yesterday, show a change in where visitors are choosing to stay. NSW, traditionally the most popular state, received 6 per cent fewer visitors over the past year. Victoria and Western Australia received 9 and 15 per cent more visitors respectively.

At the same time the high dollar and the continuing effect of bonus payments sent a record 570,200 Australians overseas on holiday in October, meaning that for at least some of the month one in every 40 Australians was out of the country.

Departures climbed 20 per cent in October, swamping a 7 per cent recovery in arrivals.

NZ remained the most popular destination with travel to Indonesia and the US up 51 and 47 per cent on the previous year. Travel to Malaysia jumped 50 per cent, travel to the Philippines 40 per cent, and travel to Fiji 24 per cent.

The executive director of the Tourism and Transport Forum, Brett Gale, said the boom came at a cost to the local tourist industry.

''Over the past year departures have outnumbered arrivals by almost 600,000,'' he said.

''On the one hand, it's hurting domestic tourism, but more optimistically, there's an opportunity because it has made so many new airline seats available to bring overseas visitors into Australia.''

p/s photos: Aum Patcharapa Chaichua

Marketocracy Portfolio Updated - December 8, 2009

Value: $1,244,343.67 Cash: $98,971.05 NAV: $12.44

price history
		SMF m100 S&P 500 DJIA Nasdaq

recent returns vs. major indexes
		MTD YTD SMF 3.17% 70.43% S&P 500 0.97% 25.27% DOW 0.43% 18.37% Nasdaq 2.32% 39.14%

recent returns
		RETURNS Last Week 4.11% Last Month 9.05% Last 3 Months 3.46% Last 6 Months 8.05% Last 12 Months 93.60% Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception 22.83% (Annualized) 16.27% S&P500 RETURNS Last Week 1.36% Last Month 5.93% Last 3 Months 9.36% Last 6 Months 18.90% Last 12 Months 34.15% Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception -8.92% (Annualized) -6.62% RETURNS VS S&P500 Last Week 2.75% Last Month 3.12% Last 3 Months -5.90% Last 6 Months -10.85% Last 12 Months 59.45% Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception 31.75% (Annualized) 22.89%

alpha/beta vs. S&P500
		Alpha 25.58% Beta 1.14 R-Squared 0.76

turnover
		Last Month 16.86% Last 3 Months 62.34% Last 6 Months 152.60% Last 12 Months 410.23%

		Symbol Price Shares Value Portion of Fund Inception Return BDD $15.72 5,000 $78,600.00 6.22% 53.98% MGM $10.58 9,500 $100,506.20 8.21% 42.69% Details F $8.92 10,000 $89,225.00 7.13% 34.05% Details PLD $13.84 8,118 $112,353.12 9.05% 25.45% Details NYB $13.39 6,000 $80,340.00 6.55% 22.22% Details NVDA $16.00 5,000 $80,000.00 6.41% 19.80% Details MIDDLE QSII $61.35 1,500 $92,025.00 7.50% 19.66% SNV $2.43 25,000 $60,750.00 4.63% 15.40% GE $16.10 4,000 $64,400.00 5.19% 8.72% LOW $22.81 3,500 $79,835.00 6.44% 4.87% JNPR $27.36 2,000 $54,720.00 4.37% 3.40% Details PSQ $45.41 3,000 $136,230.00 10.98% 0.30% Details KBW $25.30 4,500 $113,850.00 9.34% -6.81% Details

Asset Class Returns As At 30 November 2009

Time for the monthly review of the performance of various asset classes. Emerging market stocks have had a fantastic YTD, chalking nearly 70% return, some of that attributable to the USD carry trade, but also due to the immediate stimulus programs enacted by many emerging markets' governments. When you realise that most of these countries did not have as massive a wealth destruction effect as say in the US and much of Europe, one can understand the liquidity awashed in emerging market.

The other important sector which I have highlighted last month was that the commodities have started to move, which is also why the CPO saw some good upwards action last month. I suspect that its not pertaining to the fundamentals of commodities per se but rather some of the switching by USD carry trade into commodities.

If you look at the US equity markets, though many seemed fearful as it climbs towards 11,000 on the Dow, they are just up broadly by 25% on a YTD basis.

Surprisingly, junk bonds are also posting unusually large returns, or what we call high yield bonds. That can be explained by the deluge of funds moving out of cash markets and TIPs seeking higher returns one the risk aversion mentality subsided, causing a sudden ramp up in demand for junk bonds. However, the return last month for junk bonds has been muted as many are more circumspect now that the Dow has breached the 10,000 level.

p/s photos: Jessica C. (Wacoal's top model)

Now For Some Accounting Humour!

You cannot really have business and finance humour without hitting on the accountants, so here goes:

Q: When does a person decide to become an accountant?
A: When he realises he does not have the charisma to succeed as an undertaker.

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Q: Why do some accountants decide to become actuaries?
A: They find bookkeeping too exciting.

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Q. Why do audit firms only have 10 minute coffee breaks?
A. If the breaks were longer, they'd have to retrain all the staff.

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A patient was at her doctor's office after undergoing a complete physical exam. The doctor said, "I have some very grave news for you. You only have six months to live."

The patient asked, "Oh doctor, what should I do?"

The doctor replied, "Marry an accountant."

"Will that make me live longer?" asked the patient.

"No," said the doctor, "but it will SEEM longer."

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A 54-year-old accountant leaves a letter for his wife one evening which read: "Dear Wife, I am 54 years old, and by the time you get this letter I will be at the Grand Hotel with my beautiful and sexy eighteen year old secretary."

When he arrived at the hotel, there was a letter waiting for him that read as follows: "Dear Husband, I too am 54 years old, and by the time you receive this letter I will be at the Savoy Hotel with my eighteen year old toy boy. Because you are an accountant, you will surely appreciate that l8 goes into 54 many more times than 54 goes into 18."

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There once was a business owner who was interviewing people for a division manager position. He decided to select the individual that could answer the question "how much is 2+2?"

The engineer pulled out his slide rule and shuffled it back and forth, and finally announced, "It lies between 3.98 and 4.02".

The mathematician said, "In two hours I can demonstrate it equals 4 with the following short proof."

The physicist declared, "It's in the magnitude of 1x10¹."

The logician paused for a long while and then said, "This problem is solvable."

The social worker said, "I don't know the answer, but I a glad that we discussed this important question.

The attorney stated, "In the case of Svenson vs. the State, 2+2 was declared to be 4."

The trader asked, "Are you buying or selling?"

The accountant looked at the business owner, then got out of his chair, went to see if anyone was listening at the door and pulled the drapes. Then he returned to the business owner, leaned across the desk and said in a low voice, "What would you like it to be?"

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How accountants do it...
Accountants do it by the book.
Accountants do it within budget.
Accountants do it to the bottom line.
Accountants do it with double entries.
Accountants do it between spreadsheets. Accountants are Certified to do it in Public.
Accountants do it without losing their balance.

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You might be an Accountant if...

you had no idea that GAP is also a clothing store.

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during the movie Indecent Proposal you did a NPV calculation in your head.

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p/s photos: Suzanne Sae