Emerging Market Q1 ReviewPosted on April 23, 2013
Still there are opportunities out and there and we have a quick scan to consider first quarter results and pass a quick opinion on the outlook.
Here are a few of the more interesting markets.
After a strong run starting from December and continuing all the way in February the market ran out of steam and ended down 1.5% on the quarter. Concerns about new capital gains taxes in particular hurt the property sector. The government however continues to institute further reforms, including allowing resident foreigners to buy stock funds. The market remains relatively cheap with the wind of government reform and support at its back, so we continue to think China is one of the better emerging market buys around.
No ETF available but we have offshore funds that access the Shanghai market.
After a very strong 2012 the first quarter was a disappointment for the Indian market down 3% against the tide of other markets, as is sometimes the case. India remains a market of potential although political and a lack of reform the main restraint on the economy and stock market. Inflation due to lack of infrastructure continues to cause concern. The market is not particularly cheap but would become more interesting if the BSE Sensex were to get back to 16,000 points.
Unlike developed markets, the first quarter wasn’t kind to the Russian stock market down almost 6% and continuing to trend down now. The Russian market is cheap on a PE ratio basis, usually listed at around 6 or 7 on most market services, but two significant clouds loom. Russian politics seems to be regressing and Putin wouldn’t be described as a “reformer of great integrity” by most observers. The Russian economy and stock market (not to mention government tax income) remains heavily dependent on energy, particularly gas, for exports and income. Falling oil and gas prices due to the boom in supply in the United States loom as a significant speed bump.
Market Vector Russia ETF Trust (RSX)
A disappointing quarter for Brazil down 3% in foreign currency terms. The Prime Minister Rouseff is proving herself a reformer of the political system, putting much needed spotlight on corruption issues. Heavy handed government policy around oil finds, a stifling bureaucracy and monetary policy that is a little too loose for their inflation rate is a worrying factor. The market is well off its highs (down 35% off its post crisis high) and the country remains full of potential but it would be more encouraging if some of the trends, particularly macroeconomic policy were better from Brazil. Still, the World Cup is coming soon, so global focus, currently diverted elsewhere might return. We think worth considering for a longer term investor if the market falls another 5-10% which would bring the market back to levels last seen in early 2009.
iShares MSCI Brazil Index (EWZ)
Ended the quarter back almost where it started but has since fallen significantly since then. Tensions on the Korean isthmus due to its irrational attention-seeking brother to the north have probably pushed the market down 5% and might be worth a look, particularly if further falls eventuate from an increase in the tantrum volumes. The pattern of Kim tantrums and then quietness might be worth exploiting for those interested in a 5-10% easy gain from around 1875 points on the Kospi.
iShares MSCI South Korea Index Fund(EWY)
It seems a little harsh to have little, rich, well-run Singapore in the emerging markets bucket, but we place it here due to the number of big South East Asian companies from its neighbours that choose to list on the Singapore exchange. The first quarter was solid with a 2.6% increase although the trend appears to have been broken. The market doesn’t appear to be that interesting on trend or valuation basis.
iShares MSCI Singapore Index Fund (EWS)
A good quarter from Thailand with a very nice 10% gain. Politics seems fairly serene these days with good sugar harvests. We can’t help wondering how much longer the good trend can last though.
iShares MSCI Thailand Index Fund (THD)
Almost dead flat during the first quarter, although interestingly it’s pattern was the opposite of the rich world. It was down in February to recover in March. The forthcoming election may create instability so worth watching what proceeds.
iShares MSCI Malaysia Index Fund (EWM)
One of the best performers around with a cracking pace of 19% in just the first quarter. After a pause for break in April it has continued to bounce higher. Good news, politically, seems to be coming out of the Philippines and confidence seems to be building. Usually these are not things associated with the Philippines, a country that has missed several Asian booms in the last 20 years, at long last seems to be joining the party. A country of great potential seems to be starting to realize some, so worth a small investment since unclaimed potential is still the best description here.
iShares MSCI Philippines Investable (EPHE)
A 15% first quarter was an excellent result for a market that has been one of the better performers over the last couple of years in South East Asia. Still valuations are starting to become stretched and the market has reached ahead of the fundamentals. Politics is very slow moving in Indonesia and reforms are more discussed than implemented, whilst infrastructure continues to languish. Confidence still seems to exist, and that might be enough to sustain a continued rally, but we see better opportunities elsewhere at present.
iShares MSCI Indons Invstbl Mrkt Indx (EIDO)
Next Up: Bonds and Alternatives
About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area. This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China. Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business. Owen's interests are tennis, running and his wife and two children. He speaks fluent Chinese, first arriving in China in 1997.
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