Global Emerging Markets. Outlook March 2006

Transcription

1 Global Emerging Markets Outlook

2 Market Performance from to Jun Jun Jun Jun Jun Jun Jun MSCI World MSCI EM S&P500 Emerging markets continue to outperform their developed counterparts Source: Datastream, February 2006 Page 1

3 Global Growth Remains Supportive for Emerging Markets Page 2

4 Relative Performance of MSCI EM/World and OECD G7 Lead Indicator (year-on-year % change) 10% 0.6 8% 6% 0.4 4% 2% 0.2 0% 0-2% -4% % -8% % OECD G7 LI yoy % chg (LHS) M SCI EM / M SCI World Free yoy % chg (RHS) Relative performance linked to economic activity Source: Datastream, February 2006 Page 3

5 World GDP Growth Consensus % Consensus % Consensus % World US Japan EU Latin America North East Asia South East Asia Eastern Europe Emerging markets offer premium growth Source: Consensus Economics January 2006 Page 4

6 Emerging Market Valuations Remain Attractive Page 5

7 Forward Price Earnings EM US WORLD P/E EPS 17% 12% 12% PE/G As at February 2006, IBES - 12 month forward Forward P/E at low historic levels Source: Datastream, February 2006 Page 6

8 Price Earnings Discount to MSCI World 60% MSCI EM 12month Forward P/E Relative to MSCI World 40% 20% 0% -20% -40% -60% Discount / Premium to World Emerging markets still at a discount to developed markets Source: Datastream, IBES, February 2006 Page 7

9 Liquidity Still Supportive Page 8

10 Inflows Support Emerging Markets US Mutual Fund flows into Emerging Markets Cumulative 12 month flow to GEM Bonds (RHS) Cumulative 12 month flow to GEM Equities (RHS) Source: UBS, January 2006 MSCI ACWI ex US has 12.6% in EM. MSCI ACWI free has 6.4% Anecdotal evidence suggests US investors in particular are underweight emerging markets Page 9

11 s Regional Outlook Page 10

12 Asia China Growth remains strong. Currency revaluation to continue Korea Stock market good value, export sector strong, domestic economy recovering India Excellent medium term outlook, current valuations expensive, reforms unlikely Page 11

13 EMEA Russia Economy strong, political concerns abating, oil price supportive CE3 Convergence theme liquidity, market performance affecting valuations Turkey Economic environment improved, accession process commenced, reflected in prices South Africa Currency overvalued, but strong domestic economy Page 12

14 Latam Brazil Economy remains stable, exports strong but electoral uncertainty, currency overvalued Mexico Reforms stalled during Presidential election campaign Argentina Growth continues, inflation becoming a concern, populist economic policy Chile Solid domestic economy, but market expensive Page 13

15 Risks Treasury yields and Fed Funds rates Impact of high oil prices on G7 growth and inflation Profit taking and increase in risk aversion Geo-politics Page 14

16 Summary The global economic growth outlook remains generally positive in 2006 Interest rates have risen in Further measured increases are discounted in the markets Earnings growth continues to support equities. Emerging Market valuations remain very attractive both relative to their own history, on a prospective P/E of 10x, and versus developed markets. Liquidity remains high but this could be squeezed short term as interest rates rise or profits are taken Page 15

17 Performance - Micropal (to December 2005) Awarded Standard & Poor s Period 1yr 2yr 3yr 4yr 5yr Return** Percentile Risk Adjusted Rank 51/415 91/391 35/372 18/341 3/310 Percentile **Annualised Return% Prizes* S&P European winner over 3 years S&P European winner over 5 years S&P (Switzerland) winner over 5 years S&P (Germany) second over 5 years S&P (Italy) winner over 5 years *to end of March 2005 Source: S&P Micropal December 2005 Page 16

18 Emerging Market Equities - Competitor Analysis Rel. Return/Rel. Risk vs. MSCI EM Index* (since Inception: ) 9.0% Relative Return (in % p.a.) 7.0% 5.0% 3.0% 1.0% -1.0% -3.0% Comp. Global Emg Mkt (1.14) JPMorgan (0.73) Frank Russell (0.47) Merrill Lynch (-0.21) Fidelity (0.53) Capital Int. (0.37) Schroder (-0.33) ABN AMRO (0.65) Alliance Capital (0.47) ING (-0.32) Pictet (0.32) Templeton (0.47) Genesis (0.52) 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Tracking Error (in % p.a.) Date: December 2005 Source: Data Source: Standard & Poors - Micropal Work Station * used S&P IFCI Index up to 31/12/02. Returns above all relative to MSCI EM Page 17

19 Global Emerging Markets Strategy MSCI EM Target Target 06-Feb Feb-06 Comments Asia: Korea Domestic recovery in place. Liquidity and valuations and d supportive. China Attractive valuations. Domestic economy remains strong. Currency appreciation expected. Taiwan Attractive valuations and improving earnings growth. Domestic economy supportive. Thailand Attractive valuations and earnings growth. Domestic economy improving. Malaysia Reasonable valuations. Oil price supportive. Fiscal and growth concerns. Philippines Attractive valuations, reasonable economic fundamentals. Uninspiring growth. Indonesia Reasonable valuations. Continuing inflation and interest rate concerns. India Expensive valuations fully reflect strong earnings growth. Selective bottom-up opportunities. Pakistan Total: Latin America: Peru Commodity prices remain supportive but election uncertainty continues. Argentina Strong economic growth but inflation and policy concerns. Economic policy uncertainty. Oil price supportive. Brazil Reasonable valuations and declining interest rates. Expensive currency. Chile Strong economic fundamentals but expensive valuations. Interest rates rising. Mexico Unexciting valuations and earnings growth. Election concerns. Colombia Venezuela Total: EM EA: Russia Valuations no longer supportive following prolonged outperformance. Take profits. Israel Stable economic environment. Reasonable earnings growth but interest rates rising. Overriding political uncertainty. Egypt Expensive valuations offset earnings growth. Privatisation process accelerating. Liquidity remains supportive. Hungary Reasonable valuations but continuing fiscal and currency concerns. Turkey Good economic growth and earnings outlook. EU convergence process continues. Czech Rep Reasonable economic fundamentals but expensive valuations offset strong earnings growth. Poland Unattractive valuations, poor earnings growth. Short term political concerns South Africa Uninspiring valuations and current account concerns. Currency risk remains. Commodity prices supportive. Jordan Morocco Total: Liquidity: Grand Total: Source: Page 18

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