Largest Emerging-market ETF Does Not Hold Some of the Biggest EM Stocks

Chinese e-commerce giant Alibaba reported a massive surge in its fourth-quarter revenue earlier this month.

The trend contributed to the strong year-to-date advance in its stock price. This is good news for emerging-market investors — or would be, rather, as many of them may not realize that they’re not actually participating in this growth story.

Hence, Alibaba BABA, -1.14% is the most famous emerging-market company in the world, with a market capitalization of more than $300 billion. Besides, it does not partake in the most popular emerging-market funds on the market.

Moreover, Vanguard’s emerging-market equity index funds, including an exchange-traded fund and a mutual fund, don’t include Alibaba as a holding, while competing funds, including ones from BlackRock’s BLK, +0.02%  iShares suite, do. These funds don’t hold other high-profile emerging-market stocks, including Baidu Inc.BIDU, -1.83% — the Chinese internet company, which has a market capitalization of $65.8 billion — and Sina Corp. SINA, -1.97% China’s $7.1 billion telecom company.

The Vanguard funds are among the most popular way for investors to get exposure to the emerging-market sector. The Vanguard Emerging Markets Stock Index Fund has $72.7 billion in assets, while the Vanguard FTSE Emerging Markets ETF VWO, -0.87%has about $55 billion in assets, making it the largest EM ETF on the market.

Index funds like these simply track an underlying benchmark, holding whatever the index does, and in the same proportion. However, the Vanguard and iShares funds track benchmarks from different index providers, who use their own unique process and criteria for determining the holdings of the index. 

Read more at The Market Watch.

Deutsche Bank Sees Saudi Arabia Inflows Reaching over $35 Billion on MSCI

Saudi Arabia is expected to attract tens of billions of dollars in foreign investments if it’s added to MSCI Inc.’s emerging-markets index, Deutsche Bank AG’s chief executive officer for the Middle East and Africa claims.

Our “research anticipates a figure of up to $35 billion of inflows,” Dubai-based Jamal Al Kishi said in an interview.

“Given the recent developments in Saudi Arabia and the turmoil in some other emerging markets, Saudi Arabia could potentially attract more significant inflows in my view, but this will not be instantaneous.”

In 2015, the largest global oil exporter allowed qualified investors from outside Gulf Arab states to trade the kingdom’s stocks directly. This year it moved to a T+2 settlement cycle as part of a drive to diversify its $640 billion economy away from oil. The Tadawul All Share Index declined 5.4 percent this year.

Read more at Bloomberg.

Latin American Stocks Seesaw on Thin Trading Volumes

Latin American currencies and stocks seesawed Monday on thin trading volumes. Several major markets including United States, China and the United Kingdom kept a lid on liquidity due to holidays, driving traders to remain on the sidelines.

Brazil’s ongoing political scandal involving President Michel Temer has led many investors to pull back bets on a sharp 125 basis-point interest rate cut this week. Instead, rate futures suggested a 100 basis-point.

Last week, Brazil traders erred on the side of caution ahead of a key central bank decision after market close on Wednesday and the release of first-quarter gross domestic product (GDP) figures on Thursday.

Key players fear the crisis could hamper the implementation of pension and labor market reforms. The Brazilian real slipped 0.13 percent, while the benchmark Bovespa stock index fell 0.51 percent.

On the other hand, Mexico's peso noted a 0.2 percent rise against the dollar, tracking gains in the price of oil. But, Finance Minister Jose Antonio Meade said the currency could still be subject to volatility in the times ahead as the country gears up to renegotiate the NAFTA trade agreement with the United States and Canada. The Mexican stock index closed down 0.45 percent.

Read more at Reuters.

Emerging Market Stocks Slide, Rand is Down 1 pct

Political turmoil and rising dollar have forced emerging market equities down for the second day in a row while the rand led currency losses with a fall of almost 1 percent.

The developing-country MSCI benchmark eased 0.2 percent. Asia’s stock exchange has hit a soft patch whereas Russian and Polish stocks have noted a one percent fall.

Greece and its next bailout payment and the possibility of early Italian elections have raised concerns among experts.

"Emerging markets face stable U.S. Treasury yields ... versus a jump in G10 currency volatility on U.S. and euro zone politics as (President Donald) Trump returns from his voyage, the UK nears its 8 June elections and Italy looks to maybe join Germany autumn elections," Simon Quijano-Evans, emerging markets strategist at Legal & General Investment Management, wrote.

Moreover, South Africa's rand extended losses for a second day after President Jacob Zuma defeated another call from inside the ruling ANC party to step down.

In other developments, Central European currencies weakened, even though European Central Bank President Mario Draghi said subdued inflation meant substantial stimulus would still be required, dampening expectations that some policy support might be withdrawn at the ECB's June 8 meeting.

Read more at Reuters.

Emerging Markets Undergo Technological Transformation

The latest developments related to emerging markets including stable commodity prices and better corporate earnings have sparked interest amongst stakeholders.

Nevertheless, companies of today’s developing markets are very different from what they were in the past.

Enterprises and corporations have undergone a significant transformation from the often plain-vanilla business models of the past that tended to focus on infrastructure, telecommunications, classic banking models or commodity-related businesses, to a new generation of more innovative companies that are tech-savvy and have higher value-added production processes.

Back in the late 1990s, technology-oriented companies made up only 3% of the emerging market, as represented by the MSCI Emerging Markets (EM) Index. Today, around a quarter of the MSCI EM Index is in the IT sector, which includes hardware, software, components and suppliers.

Much of this activity originates from Asia, similar developments in Latin America, Central and Eastern Europe and even Africa are happening.

On May 25, the MSCI EM Index had a price-to-earnings ratio (P/E) of 15.37 times and a price-to-book value (P/B) of 1.66x, compared with a P/E of 21.53x and a P/B of 2.33x for the MSCI World index.

Read more at The Star.

Oman’s Islamic Banking Assets Note Huge Year-on-year Growth

The total assets of Islamic banks and windows in Oman reached to RO3.3bn at the end of March 2017, or 10.8 percent of total banking system assets in the country.

Islamic banking entities provided total financing of RO2.6bn compared to RO1.9bn a year ago, according to the monthly statistical bulletin released by the Central Bank of Oman (CBO) on Sunday.

Additionally, total deposits registered a robust growth to reach RO2.4bn in March 2017 from RO1.7bn outstanding as at the end of March 2016.

The combined balance sheet of conventional and Islamic banks taken together, provides a complete overview of the financial intermediation taking place in the banking system in Oman, the CBO said.

‘With oil prices continuing to remain low, economic activity in the sultanate remained subdued’, the central bank noted.

According to the Central Bank of Oman, the financial position of the banks in Oman regarding profitability, asset quality, provision coverage and capital adequacy remained sound.

On the other hand, the total outstanding credit of conventional noted a rise of 3.5 percent at the end of March 2017 compared to a year ago. Credit to the private sector increased by 6.3 percent to RO17.8bn as at the end of March 2017.

Read more at Muscat Daily.