Relatively Calm Emerging Markets Attracting Investors

Emerging markets—long considered turbulent–are seeing the lowest volatility they have in three years, which is attracting funds and bolstering returns. This according to a recent article in The Wall Street Journal. The MSCI Emerging Markets Index is up 25% over the past 12 months, the article reports, compared with a 15% return for the S&P 500. It attributes the flow in part to the fact that valuations haven’t risen as much as they have in the U.S. equity market. According to Credit Suisse Group strategist Alvise Marino, “When investors believe the market is unlikely to be hit by negative surprises, […]

Gundlach Says Go Long Emerging Markets

Despite conventional wisdom that says rising U.S. rates will strengthen the dollar, Doubleline Capital chief investment officer Jeffrey Gundlach recommends going short on the S&P 500 and long on emerging market stocks, according to a recent Bloomberg article. At the Sohn Investment Conference earlier this month, Gundlach quipped, “What the heck, let’s have some fun.” In a CNBC interview, Gundlach explained he isn’t predicting that the S&P 500 will fall, but suggested that “this year’s bet is a relative value play,” the article says. He emphasized, however, that investors have to watch out for value traps. “I don’t like catching falling […]

Zweig: Emerging Markets Look Good, But Don’t Rush In

Funds are pouring into emerging market funds, with one-twelfth of total holdings having come in over the past 90 days, writes Jason Zweig of The Wall Street Journal. Presumably, he says, the heavy inflow is in “hot pursuit of high recent returns” (the asset class is up 12.4% this year). While participating in these funds is a good idea, Zweig says, investors should be careful not to rush in. “These stocks aren’t so much absolutely cheap as relatively cheap,” he argues. According to Chris Brightman, chief investment officer at Research Affiliates, emerging markets are “half the price” of U.S. stocks. […]

Emerging Market Investor Picks for 2017

Bloomberg News offers a list of popular emerging markets for 2017 and the reasons why investors should be targeting them: Russia: The ruble is a “top bet” for investors that “borrow currencies with low interest rates and buy high yielding ones.” According to UBS Group AG, the ruble’s “carry trade” could potentially return 26 percent over the next 12 months. South Africa: Some investors see President Jacob Zuma’s power waning, which could lead to a debt downgrade and boost the attractiveness of the country’s stocks and bonds. Mexico: The peso is the “most attractive among developing Latin American peers.” Brazil: […]

Arnott: Emerging Markets Hold Promise

Although EM stocks have taken a beating in recent years, things may be looking up, writes Validea CEO John Reese in this week’s TheStreet. Reese offers insight from Research Affiliate’s Rob Arnott, who thinks that, notwithstanding swelled valuations (based on Shiller PE ratios), “emerging-market stocks offer an attractive combination of depressed currencies, low valuations and strong momentum.” Using his guru-based stock screening models, Reese identifies the following five picks that could be poised for growth: Companhia Paranaense De Energia (ELP) generates, transmits, distributes and sells electricity in the Brazilian state of Parana, and scores highly based on its favorable revenue […]

Pushing the Envelope Has Paid Off for Select Hedge Funds

On the whole, the past year hasn’t been great for hedge funds, but those who “ventured far afield” seemed to do better, according to a recent article in The Wall Street Journal. Specifically, the article says that some of the biggest profits materialized in “areas less frequently traded” including: Russia and Central Asia: One of the world’s biggest Russia-focused hedge fund firms, Moscow-based Prosperity Capital Management (approximately $3.3 billion in assets), reported a 57% gain in its flagship fund (as of December 22, 2016). The article quotes their Chief Investment Advisor, Alexander Branis, who said he has been “encouraged by […]

Rob Arnott is Pro-Emerging Market Investment

Countries don’t have to be great to see significant market growth, according to Research Affiliates’ CEO Rob Arnott as explained in a recent Investment News article. In fact, the article says, since Arnott first recommended emerging markets in January, the “average diversified markets fund has gained 7.8%, and 17.8% since the February low.” He believes the asset class offers “an unusual three-way combination of low valuations, depressed currencies and strong momentum.” Here’s how: Low valuations: Arnott uses the Shiller PE ratio (which uses 10-year historical inflation-adjusted earnings) as a basis for his argument and says that, by that measure, emerging […]

More Upside in International Stocks

The continued grind of the bull market may not be justified, according to an article in this week’s Investment News. In fact, the article, written by Joe Smith, senior market strategist at CLS Investments, argues the positive data points currently baked into the market—a dip in unemployment, improved corporate sales and earnings, additional consumer spending—don’t necessarily indicate a “positive view for investors in the U.S.” Domestic stocks, it asserts, look expensive compared to those overseas, and management initiatives to cut costs and increase share buybacks (rather than focusing on operating growth and/or reinvestment) have driven improvements in corporate earnings. “With cheap […]

Emerging Markets on The Rise

After a run of disappointing performance, emerging market stocks are perking up, says Validea CEO John Reese in a recent article for Nasdaq. Since January, this class of securities has gained more than 34% and the upward trend is expected to continue. Reese advises, however, that while the trend is a welcome change for yield-starved investors, investing in emerging markets should be based on the sort of fundamental business analysis inherent in our guru-based stock screening models. He offers the following high-scoring picks: NK Lukoil Pao ( LUKOY ), one of Russia’s largest energy concerns, is engaged in oil exploration, […]

Growth and Performance in Emerging Markets

Although it seems counterintuitive, evidence suggests that there is a negative correlation between economic growth (GDP) in emerging markets and stock market performance, says a recent Morningstar article. Alex Bryan, Morningstar’s director of passive strategies research (North America) explains that while emerging markets will “likely continue to grow faster than developed markets for the foreseeable future,” these gains might not extend to investors. Using real GDP data from the World Bank and the gross return version of MSCI country indices, Bryan found that across 41 countries (for the period from 1988 to 2015), higher economic growth did not translate into […]

Not All Active Managers Created Equal

As investors continue to divert dollars from actively managed funds to lower-cost passively managed index funds, research conducted by two finance professors at Pace University has revealed an interesting finding, according to last week’s Wall Street Journal. The study found that diversified emerging-markets funds that are actively managed are more likely to outperform their less actively managed peers as well as index funds. Matthew Morey and Aron Gottesman, finance professors at Pace University’s Lubin School of Business in New York, tracked the 67 U.S.-based actively managed emerging markets funds in the Morningstar database from 2009 through the end of 2014 […]

Emerging Markets Are Making a Comeback

As the S&P 500 continues to hold investors’ attention with its steady climb, BloombergGadfly’s Nir Kaissar shares his perspective on how and why emerging markets might deserve some attention. Kaissar points out that emerging market stocks have recently outperformed the S&P 500, a sharp reversal from recent years. The MSCI Emerging Markets Index is up 14.8% this year (through August) compared to 7.8% for the S&P. There are signs, he says, that U.S. investors are concerned about stretched valuations, as shares in what have traditionally been considered defensive sectors (consumer staples and utilities) are currently more expensive than those in […]

Waiting to Exhale: What Lies Ahead After the Brexit Vote?

“The healthy economy is one that makes its own decisions,” says Rob Arnott of Research Affiliates concerning possible fallout from Britain’s vote to stay or leave the European Union. In a recent CNBC interview, Arnott shared his views on the concern around Thursday’s result and how it will impact the markets. According to Arnott, the “fear mongering” around the vote is “a little over the top.” He says, “Roll the clock forward ten years. Is Europe still going to be trading with the U.K.? Of course they will. Will it be materially different from today? Of course not.” That said, […]

Time to Bottom Feed Across the Pond

The U.S. stock market is expensive and bond yields aren’t far from record lows. European and emerging market stocks, on the other hand, have approached stomach-turning status, says Jason Zweig of the Wall Street Journal. The European market has dropped by 12% while emerging markets have plummeted by 21.8%. Stabilized oil prices and a possible interest rate hike by the Fed has lifted investors’ outlook on these markets by a marginal 2% to 3%, but the fact remains that overseas stocks are cheap. In fact, according to data from MSCI, as of April 30th the average price-to-book value of European […]

Four Conditions Reminiscent of 1999

Rob Arnott, founder and chairman of Research Affiliates, says that the recent market environment is reminiscent of 1999, just before the tech bubble burst. Writing in Barron’s, Arnott argues that the following four “conditions parallel the extremes of the late 1990s:” “Falling inflation expectations,” which Arnott argues “snap back in reasonably short order.” He observes that “after inflation expectations hit a basement low of 0.9% in December 1998, within six months they had jumped to 2.0%” and “over the past three years, 10-year inflation expectations have plummeted by over 50% . . . to 1.2% in early February 2016” but […]