emerging markets outlook ( oct 2011 )
TRANSCRIPT
Emerging Markets Outlook
By Peter Urbani
25 November 2011
Why Emerging Markets ?
“A significant transformation of the global economy is well under way. Growth market economies will be the driver of the world economy in the coming decade.”
- Jim O'Neill*, Chairman, Goldman Sachs Asset Management
*Author of : Building better Economic BRICS
Why Emerging Markets ?
Source: IMF - WEO Forecasts Sep 2011
World GDP Share ( PPP )
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
%
Major advanced economies (G7)
Emerging and developing economies
Why Emerging Markets ?
Source: Angus Maddison, The World Economy: A Millennial Perspective p262, IMF - WEO Forecasts Sep 2011
History of World GDP Share
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
1500 1600 1700 1820 1870 1913 1950 1973 1998 2008 2016
%
UK
USA
Japan
China
India
Why Emerging Markets ?
BRIC and Emerging – High Growth
Deflationary forces still in place
EM do not share the Debt problems
Developed Markets Outlook
Emerging Markets Outlook
Note: GDP and Pop weights grossed up from 90.865% and 70.154% respectively to reflect missing countries. Total World GDP 70,012 Bn
What are ‘Emerging Markets’ ?
Source: MSCI
Why Emerging Markets ?Emerging Markets relative to MSCI World
20
70
120
170
220
270
320
370
420
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
EM Outperformance
MSCI EM relative to MSCI World
Source: MSCI
Why Emerging Markets ?
MSCI World v.s. Emerging Mkts
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
MSCI Emerging Mkts CAGR: 11.3% Ann. Vol : 24.2%
MSCI World Index CAGR: 6.3% Ann. Vol : 15.6%
Source: MSCI
US ‘Strong Dollar Policy’ a major driver
US Trade Weighted Dollar Index
60
70
80
90
100
110
120
130
140
150
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
NBER Recessions
US Trade Weighted Exchange Index:Major Currencies
Source: MSCI , US Federal Reserve
US ‘Strong Dollar Policy’ a major driver
US Trade Weighted Dollar Index
60
260
460
660
860
1060
1260
1460
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
60.00
70.00
80.00
90.00
100.00
110.00
120.00
MSCI Emerging Mkts
US Trade Weighted ExchangeIndex: Major Currencies
Source: MSCI , US Federal Reserve
Developed Markets Performance
Source: MSCI
Emerging Markets Performance
Source: MSCI
Market Inefficiencies ?
Source: MSCI , US Federal Reserve
Alternative Index Weighting Methods
0
100
200
300
400
500
600
700
00 01 02 03 04 05 06 07 08 09 10 11
EM (EMERGING MARKETS) GDP WeightedCAGR: 12.6% Ann. Vol : 25.3%
EM (EMERGING MARKETS) Equal WeightedCAGR: 16.0% Ann. Vol : 23.3%
EM (EMERGING MARKETS) IMI(Large+Mid+Small Cap) None CAGR: 10.1% Ann. Vol : 25.0%
Market Inefficiencies ?
Source: MSCI , US Federal Reserve
Size Biases - Large - Mid - Small
0
50
100
150
200
250
300
350
00 01 02 03 04 05 06 07 08 09 10 11
EM (EMERGING MARKETS) Large Cap NoneCAGR: 3.4% Ann. Vol : 17.6%
EM (EMERGING MARKETS) Mid Cap NoneCAGR: 6.4% Ann. Vol : 18.6%
EM (EMERGING MARKETS) Small Cap NoneCAGR: 5.5% Ann. Vol : 18.4%
Market Inefficiencies ?
Source: MSCI , US Federal Reserve
Style Bias - Value - Growth
0
50
100
150
200
250
300
350
00 01 02 03 04 05 06 07 08 09 10 11
EM (EMERGING MARKETS) IMI(Large+Mid+Small Cap) Growth CAGR: 1.3% Ann. Vol : 18.3%
EM (EMERGING MARKETS) IMI(Large+Mid+Small Cap) Value CAGR: 7.6% Ann. Vol : 16.8%
Over the longer term there is clear bias towards Value
And a general aversion to Growth*
* This may just represent the last 10 years poor market conditions
USD
Over the shorter term there has been some appetite for more Growth probably reflecting investors hunt for yield
Large Cap interest may reflect investor concerns over liquidity
USD
Conclusions• Short term weakness for Emerging Markets likely to persist as
USD continues to rally into mid 2010
• Longer term outlook remains for Emerging Markets to continue grow at a faster, albeit slower than historical, rate relative to developed markets
• Clear Value bias in EM but with recent trends there has been some appetite for Growth and a preference for Large Cap probably reflecting investor appetite for yield and liquidity concerns
Peter (‘Pietro’) Urbani• Chief Investment Officer (CIO) – Infiniti Capital $3bn Fund of Hedge Funds Group
Head of Quantitative Research – Infiniti Capital
• CEO – KnowRisk Consulting – Risk and Asset Consulting
• Head of Investment Strategy – Fairheads Asset Managers HNW Trust and Investment BoutiqueHead of Research – Fairheads Asset Managers
• Head of Portfolio Management – Nexus Securities
• Senior Portfolio Manager – Commercial Union – Superfund
• Equities Dealer – Junior Portfolio Manager – Mathison & Hollidge Stockbrokers
http://nz.linkedin.com/in/peterurbani