Emerging Markets Spared Worst Start on China, Chile (Update1)

By Michael Patterson
March 19 (Bloomberg) -- Just about the only equities gaining in the worst start to a year for the global stock market since 1990 are emerging economies, from Shanghai to Santiago and Tunis to Taipei.
Of the 15 benchmark indexes that rose this year, only one is from a developed country, Sweden. China’s Shanghai Composite Index rallied 22 percent and Russia’s Micex Index rose 20 percent. The gains during the first global recession since World War II are a surprise because emerging markets suffered more than the U.S. and western Europe during past economic slowdowns, according to RidgeWorth Investments’ Alan Gayle.
“Historically we grouped all the emerging markets together and said they were more vulnerable to economic downturns,” said Gayle, a Richmond, Virginia-based senior investment strategist at RidgeWorth, which oversees about $60 billion. “This cycle has made apparent the differentiation within emerging markets. The relative growth story remains good in some of these countries.”
Investors flocked to China on forecasts its economy will grow 8 percent this year, while shares in Russia, Brazil and Chile climbed as prices for their oil, iron ore and copper rebounded after the worst drop in the Reuters/Jefferies CRB Index on record last year. The MSCI World Index was down 14 percent for the quarter through yesterday after paring a loss of as much as 25 percent this year.
‘Bear-Market Rally’
The MSCI World advanced 1.5 percent at 9:22 a.m. in London today on speculation the Federal Reserve’s plan to buy $300 billion of government bonds may end the recession. The MSCI Emerging Markets Index rose 1.9 percent.
The gains since March 9, driven by speculation that the worst of financial-company losses are over after the biggest U.S. banks said they were profitable in January and February following $1.2 trillion in writedowns worldwide, signal a “bear-market rally,” said Morgan Stanley Global Wealth Management’s David Darst.
“Don’t think that the winter is over,” said Darst, the New York-based company’s chief investment strategist. “This is a time maybe to take some profits.”
While the Shanghai index of shares listed in mainland China rose this year, the shares of those stocks traded in Hong Kong fell as international investors lost confidence in China’s earnings growth, and the economic expansion slowed.
Seven of the countries with rising stock indexes in 2009 -- Colombia, Peru, Venezuela, Pakistan, Tunisia, Jamaica and Sri Lanka -- have a total market capitalization under $100 billion, compared with $9.4 trillion in the U.S.
‘Bottoming Process’
“There may be momentary trading opportunities” in developing countries, said Frederic Dickson, who oversees $20 billion at D.A. Davidson & Co. in Lake Oswego, Oregon. Most markets will tend to “shadow the U.S. market, which seems to be going through a volatile bottoming process,” he said.
In Russia, the world’s largest energy exporter, the stock market surged this year as policy makers stabilized the ruble after it dropped 34 percent since June by raising interest rates, curbing bank refinancing and threatening to sell more foreign reserves.
Oil’s 7.9 percent rebound this year through yesterday helped drive the rally. Moscow-based OAO Lukoil, Russia’s second-biggest producer, gained 27 percent. Even after this year’s advance, the Micex is valued at 3.4 times its companies’ reported profits, the lowest level among major markets worldwide, Bloomberg data show.
China Stimulus Plan
“The best reason to go long Russia today is that it’s so cheap,” said James Beadle, the chief investment strategist at Pilgrim Asset Management Ltd. in Moscow. “I also believe there’s going to be a resurgence of some kind in the resource sector” as countries boost infrastructure spending, he said.
China’s Premier Wen Jiabao said this month that the government’s 4 trillion yuan ($585 billion) stimulus package will keep its 8 percent growth target for this year within reach, even after exports fell 26 percent in February.
Anhui Conch Cement Co., China’s largest producer, climbed 36 percent this year as New York-based Goldman Sachs Group Inc. and Frankfurt-based Deutsche Bank AG upgraded the shares, citing increased demand. Conch is based in Wuhu, Anhui province.
“Within emerging markets, we have China high up the list because of the policy effort,” said Michael Dicks, the London- based head of research and investment strategy at Barclays Wealth, which oversees about $203 billion.
Chile, Israel
Brazil’s Bovespa index climbed 6.9 percent as higher iron- ore imports from China sparked a 13 percent rally in Rio de Janeiro-based Cia. Vale do Rio Doce, the world’s biggest manufacturer. The country’s banking system is also boosting investor confidence after Brazilian lenders avoided the mortgage losses that dragged down bank shares across Europe and the U.S., according to Deutsche Bank analyst Mario Pierry.
The IPSA index in Chile, the world’s biggest copper maker, added 5.7 percent this year as prices for the metal rallied 33 percent and the central bank cut interest rates at the fastest pace in 15 years.
Israel’s TA-100 Index increased 7.6 percent after a natural- gas discovery off the coast of Haifa boosted shares of Petach Tikva-based Avner Oil & Gas Ltd. and Netanya-based Delek Group Ltd. by more than 120 percent. Taiwan’s Taiex index added 9.9 percent on higher sales forecasts for Taiwan Semiconductor Manufacturing Co. and Mediatek Inc. tied to stronger demand from China. Both companies are based in Hsinchu.
South Korea’s Kospi climbed 4 percent, helped by an improved profit outlook for Suwon-based Samsung Electronics Co.
Sweden’s OMX Stockholm 30 Index rose 0.1 percent as the nation’s weakening currency improved the earnings projections for exporters such as Stockholm-based Ericsson AB.
“There are early signs that a little bit more risk-taking is afoot,” said Mark Konyn, the Hong Kong-based chief executive officer of RCM Asia Pacific Ltd., which oversees $11 billion. “We’re starting to see at the margin a re-allocation to equities.”