January 2010 Emerging Market Values


Markets have shifted back into risk aversion mode and the last two updates have looked at increased market risks.

Yesterday’s update reviewed current values in major markets.

Here we look at an emerging markets value analysis by Michael Keppler.

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Keppler says:

Emerging Markets equities finished the year 2009 with the best one-year return since 1989.

The Morgan Stanley Capital International (MSCI) Emerging Markets Total Return Index (with net dividends reinvested, December 1988 = 100) gained 8.5 % in US dollars last quarter.

In euro terms, the emerging markets benchmark soared 10.6 % last quarter.

The MSCI Emerging Markets Total Return Index gained 78.5 % in dollars and 72.9 % in euros — a complete reversal of 2008, when the Emerging Markets benchmark
crashed 50.3 % in dollars and 50.9 % in euros.

What a difference a year makes! 2009 turned out to be the best year since 1993, when the MSCI Emerging Markets Index rose 74.8 % in US dollars and 87.5 % in Deutsche marks.

The euro finished the year 2009 at 1.3901 versus the US dollar — down 1.8 % last quarter and up 3.2 % from 1.3901 at the end of 2008.

Of the three regions, Asia gained 6.7 %, Europe, Middle East and Africa (EMEA) advanced 9.3 % and Latin America came in with a 12.4 % gain last quarter.

In 2009, the three regions returned 73.6 %, 67.7 % and 103.8 %, respectively.

Performance figures are in US dollars unless indicated otherwise.

Eighteen markets rose last quarter, four markets fell. Chile stood out with a whopping 15.3 % quarterly gain, followed by Israel (+14 %) and Mexico (+13.7 %).

Morocco (-7.1 %), the Czech Republic (-6.9 %) and Egypt (-6.2 %) fared worst last quarter.

The best markets in calendar year 2009 were all triple-digit performers: Brazil (+128.1 %), Indonesia (+126.2 %) and Russia (+104.2 %). Morocco — the only losing market — (-5.3 %), the Czech Republic (+26.5 %) and Egypt (+39.7 %) came in at the bottom of the performance range last year.

There was no change in the composition of the Top Value Model Portfolio last quarter.

It currently holds the nine “Buy”- rated markets Brazil, the Czech Republic, Egypt, Hungary, Poland, Russia, Taiwan, Thailand and Turkey at  equal weights.

According to our performance ratings, these markets offer the highest expectation of long-term risk-adjusted returns.

Other rankings changed in the past three months Chile, India and Korea remained low value (sell) ranked markets.

It is worth noting that Chile was a low value market over the last quarter even though it skyrocketed over 15%.  This points out the longer term nature of value investing.

Just remember “more buyers willing to pay high prices does not create good deals.”  The higher a low value market sh as Chile rises the greater its risk.

This is especially a time to avoid risk.

However Brazil’s stock market is still ranked as a buy market and it has perfomred well over the pats five years. Here is a five year chart of Brazil’s Bolsa from finance.yahoo.com.

Brazil chart

Keppler added Indonesia to his SELL CANDIDATES (Low Value)  which are now: Chile,  India, Indonesia Korea.

NEUTRALLY RATED MARKETS Argentina, China, Colombia, Indonesia, Israel, Jordan,  Malaysia, Mexico, Morocco, Philippines, Pakistan, Peru, Russia, South Africa, Sri Lanka, Venezuela.

Gary

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