Emerging Markets Expected to Outperform US in Coming Years

The decline of the Western World and the rise of emerging markets was one of the main topics discussed at this year’s Strategic Investment Conference.

The publisher of the long-running Gloom, Boom & Doom Report Marc Faber considers that emerging markets will vastly outperform developed markets.

In 1970, the total market cap of US stocks as a percentage of GDP was 30%. Today, it is 130%. With this massive run up in valuations, Marc believes US equities are the most expensive asset class in the world. As such, future returns will be much lower than they have been up to now.

Economic growth in emerging markets is the underlying reason behind this rally. In 1960, China and India accounted for just 5% of global GDP; now they are at 30%. One of the reasons for this massive decline is the huge increase in resource imports by China. Today, China accounts for half of all industrial commodity imports, a 25-fold increase since 1970.

According to the expert, investors would be wise to avoid US equities going forward and instead focus on emerging markets. Marc further added “If I had to choose only one sector to invest in, it would be resources. Right now, the resource sector is very depressed and there are many opportunities.”

Read more at Value Walk

Pakistan Stock Market Could Attract More Money than it Can Handle

Pakistan’s stock market could attract bigger cash inflow than it can handle the day before MSCI Inc. restores the nation to emerging-market status.

About $500 million may gush into the nation’s equities on May 31, said Ali Khalpey, chief executive officer frontier markets at the Cairo-based investment bank.

Nevertheless, the one-day inflow, if it comes to pass, would compare with the $532 million Pakistan received in all of 2010. The benchmark KSE100 Index has risen 6.8 percent this month to a record.

“It’s a big number and there isn’t enough capacity in the system to handle the volume and value we expect,” Khalpey said. “We have worked with similar investors when Qatar and the United Arab Emirates were upgraded by MSCI. The flows won’t be staggered. Tracker funds have to execute on the day.”

Read more at Bloomberg.

Emerging Economies Are Going Green But Lack Funding

Emerging economies are increasingly taking the lead in shifting the world onto a cleaner development path, a senior World Bank official said on Wednesday, pointing to the role of China and India in pushing down the cost of producing solar power.

Ethiopia estimates it will need more than $150 billion to implement its national climate action plan. Meanwhile in India, recent auctions to construct and run solar plants have seen prices for solar energy drop as low as for coal-fired power, tilting the economics of the electricity market towards renewables.

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John Roome, senior director for climate change at the World Bank, said India had evolved from a decade ago when it was seen as part of the problem, insisting on its people's right to develop above all else. In the last two years it has become a leader on clean energy and climate action, he said.

But India and other big developing countries cannot make the transition alone, Roome added.

Moreover, the Indian solar power auction held in February in Madhya Pradesh - where the cost of solar fell to a level equal with fossil fuels for the first time - was backed by the World Bank. The financial organization provided funds for acquiring the land for a solar plant.

Major improvements in energy efficiency, alongside new technologies, can enable poorer countries to grow in a green way, Roome noted, "but it's going to take very concerted work between the policies, the incentives, the financing (and) focusing on developing the markets".

Experts and other participants at the Innovate4Climate conference pointed to trillions of dollars now sitting in low-yielding investments or cash, looking for higher returns - much of which could be used for sustainable development.

At the moment, less than 1% of global investment is certified as "green", Roome noted.

Read more at Eyewitness News.

Brazil Recovery Boosts Emerging Markets

Developing-country markets bounced back this week, helped by Brazil’s market recovery.

Until Thursday, Brazil was the best performing stock market in pound terms over the five days, according to our exclusive Accumulator data table, as it recovered some ground from last week's heavy losses.

Moreover, the country’s recovery helped emerging markets to a 3.1% gain, taking their gains in 2017 so far to 13%, just behind Europe's 13.9% in the race for the best performing region of the year.

However, the alleged corruption scandal involving president Michel Temer has not gone away. Temer withdrew an order sending 1,500 troops onto the streets amid strong criticism.

Nevertheless, the country's stock market and currency have trimmed off some of their losses, although both are still down heavily following the political scandal.

Read more at CityWire.

Emerging Stocks Reach Two-year High, Yuan Leads Foreign Exchange Gain

Emerging-market stocks reached two-year highs on Friday, while China's yuan led biggest weekly gain since December.

Developing-country assets have taken heart in recent days from relatively dovish minutes from the last U.S. Federal Reserve meeting, though disappointment over the scale of oil supply cuts announced by OPEC kept the MSCI emerging equity index from adding significantly to gains.

The benchmark has, however, posted a rise every month in 2017, for gains of almost 18 percent to date.  According to JPMorgan, developing market funds continue to receive new money, whereas data showed inflows halved from the previous week to $1.2 billion for equity funds and $1 billion coming into emerging debt funds.

With the VIX volatility gauge at two-week lows and just off recent multi-year troughs, the backdrop remains positive for emerging markets, said Cristian Maggio, a strategist at TD Securities.

Currency gains were led by the yuan which hit the firmest level since February with a weekly 0.3 percent gain. This is partly down to hefty dollar sales by Chinese banks on Thursday following the Moody's rating cut.

Read more at Reuters.

Investors Snap up Pakistan ETF Before Emerging Market Entry

Shareholders seem to be in a rush to snap up U.S.-listed exchange-traded fund dedicated to Pakistani stocks before the nation’s entry into MSCI Inc.’s emerging-market index next week.

Hence, Global X MSCI Pakistan ETF is on course for the biggest monthly inflow since it started two years ago after investors added $11.8 million from May 1 through May 24, data compiled by Bloomberg show. More than $1 million short positions have been cut as bearish bets were pared to the lowest since December.

Most of the Pakistani shares were bought on Tuesday, turning net buyers for only the fourth time this month, amid optimism the nation may lure a wider class of investors after regaining emerging-market status for the first time in nine years.

“Pakistan is going from being a big fish in a small pond to a small fish in a big pond,” Jay Jacobs, director of research at Global X, said by phone from New York.

“The upgrade will put the country on people’s radars, whereas they wouldn’t have had the desire to invest before.”, he added. 

The fund’s assets have quadrupled this year to a record $48 million, the data show.

Read more at Bloomberg.