Salient to Investors:
Adrian Mowat at JPMorgan said emerging-market stocks may enter a significant correction because fundamentals and technicals are weakening – investors should use options that protect against stock losses and sell equities that are most sensitive to market swings. Mowat sees no near-term changes to these conditions and expects emerging markets to continue to underperform and be a funding source for Japan. Mowat said emerging-market investors should favor quality companies with high return on equity, and is overweight shares in Turkey, India, Mexico, Indonesia, Thailand, the Philippines and Peru.
62 percent of MSCI Emerging Markets Index companies so far reporting missed analyst estimates versus 34 percent of MSCI World Index companies.
John-Paul Smith at Deutsche Bank said shrinking liquidity in China, heavier state intervention in key emerging-market economies, and a dearth of good stock ideas are the main reasons for being bearish. Smith expects a 10 to 15 percent decline for emerging markets in 2013 and more relative to the US. Smith says 2013 is the year people finally realize that the future sustainable rate of growth in China is much lower than they expect.
Bank of America says investors should buy emerging-market equities and bonds as economic growth improves in the BRICs. Analysts forecasts for 2013 suggest the MSCI emerging-market index will rise 13 percent in the next 12 months. The MSCI Index is at 10.5 times projected 12-month earnings, versus 13.7 for the MSCI World Index.
Lewis Kaufman at Thornburg Investment Mgmt said withdrawal of the global stimulus may lead to losses in emerging-market stocks as earnings growth has yet to show signs of recovery, and many companies are struggling to meet earnings expectation – there’s a bit of disconnection between the extent of the rally and underlying fundamentals. Kaufman favors stocks in Southeast Asia and the Philippines as economic growth surprises positively.
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