Nifty : Stats & Views
- Thread starter linkon7
- Start date
By Sebastian Tong
LONDON (Reuters) - Portfolio allocations into emerging markets are rising rapidly in anticipation of long-term growth but investors may be overestimating relative returns even if they are correct about the sector's economic prospects.
An anaemic dollar and low interest rates in the developed world following the 2008 financial crisis have strengthened a consensus trade that is spurring even traditionally conservative pension funds to raise their exposure to the asset class.
But although they contributed more than 70 percent of global growth during the recent cyclical recovery, emerging markets are not a one-way bet.
"Investors are underestimating some of the structural issues that could come through in the next few years," said John-Paul Smith, Deutsche Bank global markets strategist.
"Over the medium-term, developed markets -- in particular the United States -- are likely to outperform emerging markets as an aggregate asset class," said Smith, who sees a 15 percent underperformance by emerging to developed stocks by end-2011.
(Emerging versus developed equities performance, click http://graphics.thomsonreuters.com/11/05/GLB_EMVAL0511_SB.jpg
Emerging markets volatility over developed markets volatility, click http://graphics.thomsonreuters.com/11/05/GLB_MRGDVVL0511_VF.jpg
Emerging equities outperformance versus developed equities since 2005, click http://graphics.thomsonreuters.com/11/05/GLB_MRGDVQT0511_VF.jpg )
A chronic inability to hold down inflation and structural flaws have long hobbled these markets, notwithstanding what appears to be a secular portfolio shift in their favour.
A recent Mercer survey showed a fifth of European pension funds -- which must find growth assets to cover their liabilities as populations age -- mulling a hike in allocations to emerging debt. A JPMorgan study found 12 percent of Japanese pension funds also planning to increase holdings of emerging stocks and bonds.
U.S. pensions giant CalPERS recently committed $400 million to emerging market funds while the world's largest bond fund PIMCO last month launched two emerging equity funds.
OUTPERFORMANCE UNCERTAIN
The allure is understandable.
Emerging economies are set to grow at more than double the rate of developed economies in the next two years, according to International Monetary Fund forecasts.
Goldman Sachs predicts the aggregate gross domestic product of the four major emerging economies -- Brazil, Russia, India and China -- will overtake that of the United States by 2018.
But long-term GDP growth -- underpinned by favourable demographics, high levels of domestic savings and rising consumption levels -- may not bring investment outperformance.
Long-term assumptions are often discounted into existing prices, write Elroy Dimson, Paul Marsh and Mike Staunton, authors of a Credit Suisse/London Business School study.
"The supposed link between economic growth and stock-market performance is statistically weak and often perverse," they add.
The study showed an annualised return of 9.5 percent from emerging market shares between 1975 and 2009, based on a composite of S&P and IFC indices, just below the 10.6 percent seen from developed markets in the same 34-year period.
In the last decade to 2009, emerging shares outperformed their developed peers by 10 percent per annum but "it would be unwise to expect this to persist".
While a crucial component of portfolio diversification, "the case for emerging markets is often oversold," the authors write.
Companies in these economies often plough back profits to develop nascent markets rather than pay shareholder dividends.
"What's fast-growing are small but unlisted firms that represent the fastest growing segments of the economy," said Andrew Millgan, Standard Life Investments' global strategy head.
In fact, firms that benefit more from growth in emerging economies are often listed on developed markets such as London.
Despite favourable fund flows trends, emerging markets have underperformed this year.
Emerging bond funds still post strong weekly inflows, EPFR data shows, while the exodus of investors from emerging equities that began late last year reversed end-March.
But MSCI's emerging stock benchmark is down 0.6 percent this year, outpaced by the 5 percent gain in its developed markets peer.
JPMorgan's EMBI+ Index of emerging sovereign debt generated year-to-date returns of 3 percent, on a par with the government bond index for developed countries.
TOO SANGUINE?
The inflation threat has been blamed, as these economies are more vulnerable to the impact of higher food and fuel prices.
Their central banks have intensified their battle against inflation -- China has raised bank reserve requirements repeatedly while Poland and Chile have made surprise rate hikes.
But until Russia, China and other emerging economies adequately address structural constraints such as poor infrastructure and skilled labour scarcity, price pressures are likely to persist for years to come.
As the pace of their growth barely flagged during the financial crisis, many are at the limits of their capacity. A growth re-acceleration would nudge price inputs higher.
"The labour market could be a particularly important transmission channel for inflation pressures with the risk that, unlike in the developed world, an inflation shock turns into an on-going inflation process," said Phil Poole, global head of macro and investment strategy at HSBC.
With real interest rates -- the difference between inflation and nominal interest rates -- negative in many emerging economies, investors fret that some central banks have fallen behind the curve.
Old doubts over the ability and willingness of emerging economies to curb inflation have resurfaced. Policymakers in these markets are perceived to be more tolerant of brief inflationary spikes in exchange for faster growth.
Turkey, last year's emerging markets darling, is under growing investor criticism for holding its interest rates low.
"Emerging market central banks continue to face questions over credibility. Some of these concerns stem from the fact that many are not fully independent," said Morgan Stanley's chief emerging markets economist Manoj Pradhan.
(Additional reporting by Sujata Rao; Editing by Catherine Evans)
LONDON (Reuters) - Portfolio allocations into emerging markets are rising rapidly in anticipation of long-term growth but investors may be overestimating relative returns even if they are correct about the sector's economic prospects.
An anaemic dollar and low interest rates in the developed world following the 2008 financial crisis have strengthened a consensus trade that is spurring even traditionally conservative pension funds to raise their exposure to the asset class.
But although they contributed more than 70 percent of global growth during the recent cyclical recovery, emerging markets are not a one-way bet.
"Investors are underestimating some of the structural issues that could come through in the next few years," said John-Paul Smith, Deutsche Bank global markets strategist.
"Over the medium-term, developed markets -- in particular the United States -- are likely to outperform emerging markets as an aggregate asset class," said Smith, who sees a 15 percent underperformance by emerging to developed stocks by end-2011.
(Emerging versus developed equities performance, click http://graphics.thomsonreuters.com/11/05/GLB_EMVAL0511_SB.jpg
Emerging markets volatility over developed markets volatility, click http://graphics.thomsonreuters.com/11/05/GLB_MRGDVVL0511_VF.jpg
Emerging equities outperformance versus developed equities since 2005, click http://graphics.thomsonreuters.com/11/05/GLB_MRGDVQT0511_VF.jpg )
A chronic inability to hold down inflation and structural flaws have long hobbled these markets, notwithstanding what appears to be a secular portfolio shift in their favour.
A recent Mercer survey showed a fifth of European pension funds -- which must find growth assets to cover their liabilities as populations age -- mulling a hike in allocations to emerging debt. A JPMorgan study found 12 percent of Japanese pension funds also planning to increase holdings of emerging stocks and bonds.
U.S. pensions giant CalPERS recently committed $400 million to emerging market funds while the world's largest bond fund PIMCO last month launched two emerging equity funds.
OUTPERFORMANCE UNCERTAIN
The allure is understandable.
Emerging economies are set to grow at more than double the rate of developed economies in the next two years, according to International Monetary Fund forecasts.
Goldman Sachs predicts the aggregate gross domestic product of the four major emerging economies -- Brazil, Russia, India and China -- will overtake that of the United States by 2018.
But long-term GDP growth -- underpinned by favourable demographics, high levels of domestic savings and rising consumption levels -- may not bring investment outperformance.
Long-term assumptions are often discounted into existing prices, write Elroy Dimson, Paul Marsh and Mike Staunton, authors of a Credit Suisse/London Business School study.
"The supposed link between economic growth and stock-market performance is statistically weak and often perverse," they add.
The study showed an annualised return of 9.5 percent from emerging market shares between 1975 and 2009, based on a composite of S&P and IFC indices, just below the 10.6 percent seen from developed markets in the same 34-year period.
In the last decade to 2009, emerging shares outperformed their developed peers by 10 percent per annum but "it would be unwise to expect this to persist".
While a crucial component of portfolio diversification, "the case for emerging markets is often oversold," the authors write.
Companies in these economies often plough back profits to develop nascent markets rather than pay shareholder dividends.
"What's fast-growing are small but unlisted firms that represent the fastest growing segments of the economy," said Andrew Millgan, Standard Life Investments' global strategy head.
In fact, firms that benefit more from growth in emerging economies are often listed on developed markets such as London.
Despite favourable fund flows trends, emerging markets have underperformed this year.
Emerging bond funds still post strong weekly inflows, EPFR data shows, while the exodus of investors from emerging equities that began late last year reversed end-March.
But MSCI's emerging stock benchmark is down 0.6 percent this year, outpaced by the 5 percent gain in its developed markets peer.
JPMorgan's EMBI+ Index of emerging sovereign debt generated year-to-date returns of 3 percent, on a par with the government bond index for developed countries.
TOO SANGUINE?
The inflation threat has been blamed, as these economies are more vulnerable to the impact of higher food and fuel prices.
Their central banks have intensified their battle against inflation -- China has raised bank reserve requirements repeatedly while Poland and Chile have made surprise rate hikes.
But until Russia, China and other emerging economies adequately address structural constraints such as poor infrastructure and skilled labour scarcity, price pressures are likely to persist for years to come.
As the pace of their growth barely flagged during the financial crisis, many are at the limits of their capacity. A growth re-acceleration would nudge price inputs higher.
"The labour market could be a particularly important transmission channel for inflation pressures with the risk that, unlike in the developed world, an inflation shock turns into an on-going inflation process," said Phil Poole, global head of macro and investment strategy at HSBC.
With real interest rates -- the difference between inflation and nominal interest rates -- negative in many emerging economies, investors fret that some central banks have fallen behind the curve.
Old doubts over the ability and willingness of emerging economies to curb inflation have resurfaced. Policymakers in these markets are perceived to be more tolerant of brief inflationary spikes in exchange for faster growth.
Turkey, last year's emerging markets darling, is under growing investor criticism for holding its interest rates low.
"Emerging market central banks continue to face questions over credibility. Some of these concerns stem from the fact that many are not fully independent," said Morgan Stanley's chief emerging markets economist Manoj Pradhan.
(Additional reporting by Sujata Rao; Editing by Catherine Evans)
Uploaded the updated chart here..
http://img90.imageshack.us/img90/1921/nifty10jun.png
http://img90.imageshack.us/img90/1921/nifty10jun.png
| Thread starter | Similar threads | Forum | Replies | Date |
|---|---|---|---|---|
| S | EOD data for Nifty 50 with volume | Introductions | 0 | |
| V | Banknifty expiry date change | Options | 7 | |
|
Bank Nifty - Support / Resistance | Options | 13 | |
| D | NSE Changes Nifty Bank Expiry Day to Friday for Future and Options Contracts | General Trading & Investing Chat | 11 | |
|
Nifty Ki Study | Day Trading | 2 |
Similar threads
-
-
-
-
NSE Changes Nifty Bank Expiry Day to Friday for Future and Options Contracts
- Started by DreamDeal
- Replies: 11
-