What’s Going On?
Why the “dirty laundry” in emerging markets this year versus developed markets which have soared?
On the move down in emerging markets there have been four (4) distinct phases:
- Global growth questions
- Country specific political and policy questions
- Current account and macro pressure coming from change in monetary flows
- Tapering leads to actual reallocation of money away from EM assets
Not all has been bad for emerging markets if you are a stock picker or follow momentum.
For example, Chinese internet stocks are soaring +50% this year and some valuations still look interesting if you consider the delivery of revenues from mobile and search we are seeing from the major players,
Other areas where stock pickers in emerging markets have made money are:
Consumer non-Cyclical and Consumer Cyclical have done well
– Magnit Russia – largest discount supermarket chain
– Aspen Pharmacare (APNHF, quote) South Africa – branded and generic pharm supplier
– Unilever Indonesia (UNLRF quote) Consumer non-cyclical
– Cielo (CIOXY, quote) +25% in Brazil – electronic payment solutions
– Mercado Libre (MELI, quote) +53% Latin America eBay meets Craig’s List ….
Communications:
– Naspers (NPSNY, quote) in South Africa
Industrial:
– Embrear (ERJ,quote) in Brazil airline manufacturer
– COWAY in SK +3te4% air purifiers clearers water treatment
Things will get better and the inflation growth tradeoff gives opportunities in bombed out places like Brazil and India…but these areas will probably need to see more Fed unwinding.
– Brazil (EWZ, quote) -30% in USD terms trades at 4.2% div yield
The trade right now is to bet on those companies who are well positioned to see follow through on European Union and global domestic market recovery.
Airlines:
– COPA/ERJ
Materials
Industrials:
– KOC Holding
Overall playing in emerging markets with a couple of years’ time horizon seems opportunistic, especially based on multiples. The MSCI EM (MXEF) is 11.2x current 9.5X 2014 P/E If you are playing the iShares MSCI Emerging Markets (EEM, quote), $36.50 is the 18 month support on EEM or 880 on MXEF MSCI Index.
If you want to play a lower volatility core EM index that has outperformed the EEM, try iShares MSCI Emerging Markets Minimum Volatility (EEMV,quote).