Business Times - 19 Dec 2007
Asian markets caught in global equity downdraft
Only India, M'sia still in positive territory over past month, China and Taiwan badly hit
By NEIL BEHRMANN IN LONDON
EMERGING markets have not decoupled from the major stock markets and have been caught in the downdraft of global equity declines.
Suggestions that China and India would not be affected by the credit crunch or the slowing US and European economies have proved to be quite wrong.
Goldman Sachs wisely advised its clients several weeks ago to take profits in China and other emerging markets.
Indices of MSCI Barra until Monday show that in US dollar terms only India and Malaysia are still in positive territory over the past month, although they have also fallen during the past few days.
Of the Asian markets China and Taiwan have been hit particularly badly. Despite the market gloom, there could well be a rally in the remaining days of 2007 as fund managers 'window dress' by purchasing stocks to boost fund performance by the end of the year.
The change in sentiment has been marked during the past few days. According to EPFR Global some investors were bargain hunting last week.
Besides US$3.37 billion that flowed into Global Emerging Market Equity Funds, Asia ex-Japan Funds absorbed another US$1.57 billion during that week. Inflows into Brazil, Korea, India, China, Greater China and Russia Country Funds totalled US$1.54 billion while Bric (Brazil, Russia, India, China) Equity Funds took in another US$985 million, estimates EPFR Global. The recent declines indicate that there have since been foreign withdrawals.
Asian and other emerging market performance in 2008 will be vitally dependent on global inflation trends and US and European economic performance. Indeed there are fears that there could be stagflation with food prices, soaring and energy prices remaining high.
'Slower growth but rising inflationary pressures despite appreciating currencies pose major challenges for the policy makers' next year, said Jong-Wha Lee, head of the Asian Development Bank office of Regional Economic Integration. Mr Lee said the region has so far experienced limited impact from effects of the US sub-prime mortgage woes, but he said East Asian economies, which have close trade ties with the US, will suffer if the US economy struggles.
Goldman Sachs advised clients to cut exposure to emerging markets, fearing that turmoil in the global credit markets risks triggering a 'painful' correction in Latin America, Eastern Europe and parts of Asia. In a series of client notes in December, the US investment bank advised cashing in profits as a precautionary 'near-term' measure.
Some analysts fear that emerging markets have succumbed to a dangerous bubble, replacing US property and structured credit as the new focus of systemic risk. Credit rating agency Standard & Poor's has warned investors to cut the portfolio share of emerging markets from 6 per cent to 4 per cent.
Goldman said it remained 'very bullish' on the emerging markets for the longer run but added that investors need to be very careful at this stage.
Asian markets caught in global equity downdraft
Only India, M'sia still in positive territory over past month, China and Taiwan badly hit
By NEIL BEHRMANN IN LONDON
EMERGING markets have not decoupled from the major stock markets and have been caught in the downdraft of global equity declines.
Suggestions that China and India would not be affected by the credit crunch or the slowing US and European economies have proved to be quite wrong.
Goldman Sachs wisely advised its clients several weeks ago to take profits in China and other emerging markets.
Indices of MSCI Barra until Monday show that in US dollar terms only India and Malaysia are still in positive territory over the past month, although they have also fallen during the past few days.
Of the Asian markets China and Taiwan have been hit particularly badly. Despite the market gloom, there could well be a rally in the remaining days of 2007 as fund managers 'window dress' by purchasing stocks to boost fund performance by the end of the year.
The change in sentiment has been marked during the past few days. According to EPFR Global some investors were bargain hunting last week.
Besides US$3.37 billion that flowed into Global Emerging Market Equity Funds, Asia ex-Japan Funds absorbed another US$1.57 billion during that week. Inflows into Brazil, Korea, India, China, Greater China and Russia Country Funds totalled US$1.54 billion while Bric (Brazil, Russia, India, China) Equity Funds took in another US$985 million, estimates EPFR Global. The recent declines indicate that there have since been foreign withdrawals.
Asian and other emerging market performance in 2008 will be vitally dependent on global inflation trends and US and European economic performance. Indeed there are fears that there could be stagflation with food prices, soaring and energy prices remaining high.
'Slower growth but rising inflationary pressures despite appreciating currencies pose major challenges for the policy makers' next year, said Jong-Wha Lee, head of the Asian Development Bank office of Regional Economic Integration. Mr Lee said the region has so far experienced limited impact from effects of the US sub-prime mortgage woes, but he said East Asian economies, which have close trade ties with the US, will suffer if the US economy struggles.
Goldman Sachs advised clients to cut exposure to emerging markets, fearing that turmoil in the global credit markets risks triggering a 'painful' correction in Latin America, Eastern Europe and parts of Asia. In a series of client notes in December, the US investment bank advised cashing in profits as a precautionary 'near-term' measure.
Some analysts fear that emerging markets have succumbed to a dangerous bubble, replacing US property and structured credit as the new focus of systemic risk. Credit rating agency Standard & Poor's has warned investors to cut the portfolio share of emerging markets from 6 per cent to 4 per cent.
Goldman said it remained 'very bullish' on the emerging markets for the longer run but added that investors need to be very careful at this stage.
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