Here is a summary of Keppler’s current comments on recent developments & outlook in emerging markets.
Emerging Markets eked out another monthly gain in their efforts to climb back from their earlier correction. However, they are still more than 6 % away from their all-time high reached in early May. The Morgan Stanley Capital International (MSCI) Emerging Markets Total Return Index gained 0.8 % in US dollars. In euro terms, the emerging markets benchmark rose 1.9 % last month.
For the year, the MSCI Emerging Markets Total Return Index advanced 12.4 % in dollars and 4.7 % in euros.
For the month Asia was leading the region with a 4 % gain. Latin America gaining 0.8 % came in a distant second, while Europe, Middle East and Africa (EMEA) declined 4.8 % (performance numbers are in US dollars unless indicated otherwise).
Year-to-date, Latin America leads with a 17.4 % gain, Asia is up 15.2 % and EMEA returned 4 %.
Fifteen markets advanced last month and twelve declined. The Philippines stood out as the only market with a double-digit gain in September (+11.8 %). India continued its winning streak with a 7.9 % gain and Pakistan (+6.1 %) came in third last month.
Russia (-6.7 %), South Africa (-6.4 %) and Turkey (-4.5 %) finished last. Year-to-date, twenty-two markets were up and five markets declined.
Morocco continues to lead the year-to-date winners with a 58.1 % gain, followed by Venezuela (+57.7 %) and Indonesia (+45.3 %).
Jordan (-24.1 %), Turkey (-17.8 %) and Israel (-8.9 %) performed worst during the first nine months.
The Emerging Markets Top Value Model Portfolio, which invests according to the Top Value Strategy and assumes index returns for each national market included in the strategy, advanced 2.2 % in dollars and 3.3 % in euros, outperforming the benchmark for the month by 1.4 percentage points.
Year to-date, the Emerging Markets Top Value Model Portfolio gained 16 % in US dollars and 8.1 % in euros, outperforming its benchmark by 3.6 and 3.4 percentage points, depending on the currency.
There are three changes in our performance ratings this month: Poland is upgraded to “Buy” from “Neutral”. China and the Philippines are both downgraded to “Neutral” from “Buy”.
We added the Philippines at the end of October 2001. During the 59 months, the MSCI Philippines Total Return Index advanced from 70 to 163, a compound annual gain of 18.8 %. The MSCI Emerging MarketsTotal Return Index gained 27.4 % p.a. during the same time.
China was added at the end of November 2005. During the 10 months China was held in the Top Value Model Portfolio, the MSCI China Total Return Index went from 144 to 199, a compound annual gain of 48.8 %. By comparison, the MSCI Emerging Markets Total Return Index advanced at compound annual rate of 23.3 % during the same 10 months. China and the Philippines are no longer attractive based on our analyses.
Poland to the contrary has much to offer both from a diversification and a valuation point of view. As an example, by adding Poland and eliminating both China and the Philippines we will increase the dividend yield of the Top Value Model Portfolio by 46 basis points from 2.92 % to 3.38 %. And at the same time, the price/earnings ratio will decline from 12.7 to 11.98.
After eliminating both China and the Philippines and adding Poland , the Top Value Model Portfolio contains the seven markets of Brazil, Korea, Malaysia, Poland, Taiwan, Thailand and Turkey at equal weights.
SELL CANDIDATES: Argentina, Egypt, India, Indonesia, Jordan, Mexico, Morocco, Pakistan, Peru, South Africa
NEUTRALLY RATED MARKETS: Chile, China, Colombia, Czech Republic, Hungary, Israel, Philippines, Russia, Sri Lanka, Venezuela
You can get ideas on shares in these top value emerging stock markets from Thomas Fischer at Fischer@jbpb.dk
For more details on Keppler’s analysis, contact Roderick Cameron at 1-212-245-4304 or email firstname.lastname@example.org
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Until next message, good international investing and international business!
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