Emerging markets are assuming an ever more prominent role in the global economy and in investment portfolios. As they do, they seem to be increasingly difficult to figure out.
Some portfolio managers and strategists view emerging markets as high-risk assets in countries whose economies and businesses are highly leveraged to, and dependent on, global growth. According to this view, they are like any other stock market, only more so.
Another school of thought, which has been catching on in the last two or three years, holds that emerging markets are among the safer destinations for investors' money. The developing world has evolved from a collection of debt-addled command economies ruled capriciously and ineptly by El Presidente or the Politburo, adherents of this idea contend, into hotbeds of commercial enterprise with huge trade surpluses and foreign reserves, as well as benign and often wise leaders.
Each camp has points in its favour. When the financial world began to fall apart two years ago, the focal points of the crisis were banks in the US and Europe, not Asia and Latin America, as in previous tumultuous times.
When the credit crunch caused growth to slow or vanish, it was the developing economies that were better able to cope. They had the cash on hand, and they didn't need as much as the West did to shore up financial institutions. While some European countries continue to struggle, such as Greece and Iceland, those in the emerging world appear to be enjoying a much smoother ride, with the notable and local exception of Dubai.
All that's as may be, old-school observers would say, but it was still the developing stock markets that suffered the most during the crisis as investors fled risk. They are also the ones enjoying the greatest rebound as risk-seeking has returned to fashion.
Reconciling these antithetical views and circumstances isn't easy, but analysts at Barclays Capital make a fair go of it. They have selected 10 countries that they place into a new category, Advanced Emerging Markets, that serves as a way station between emerging and mature.
The point of the exercise, they say in a recent report, is to "capture a list of countries with a future of solid growth without the volatility ... characteristic of the original emerging market countries."
The factors used to make their choices include financial and economic stability, a history of healthy growth, and an improving government policy backdrop, including a strong response to the recent global crisis. The analysts emphasise that they are interested in consistent and persistent development.
"Because our goal is to identify countries that have graduated from the traditional emerging market predicaments in a permanent way, the criteria should capture long-standing progress on each of the relevant fronts, rather than the latest economic miracle," they explain.
The 10 that fit the bill, ranked from the best down, are: Singapore, Chile, Korea, Taiwan, Israel, China, Brazil, South Africa, Poland and the Czech Republic.
It's certainly a geographically broad collection, although investors in the Gulf will note that their markets are shut out. This seems to be a matter of quantity, not quality.
"All else being equal, bigger countries normally capture more attention than smaller ones, as they are likely to have a more important global impact, as well as deeper financial markets," the report states.
Fair point. That suggests that such developments as the wider opening of Saudi Arabia to foreigners and the consummation of plans to introduce a Gulf Co-operation Council currency would be good for markets.
Without them, conversely, Gulf markets will have trouble attracting foreign money, which could keep valuations lower than larger markets with the same economic fundamentals.
As for the markets that do make the Barclays Capital list, a few raise eyebrows. China has navigated the financial crisis well, but the country is not exactly the poster child for free markets. It may be included in part because it's too big to be left off.
Poland and the Czech Republic aren't paragons of fiscal rectitude and seem to be odd fits with the analysts' standards for economies on the cusp of maturity. But they do rank ninth and 10th, which makes you wonder what locale finished 11th.
The list and the analysis that produced it also fail to acknowledge that despite the advances in emerging economies like these their bourses continue to undergo far more violent swings than those in economies recognised as developed. Investors apparently haven't reached the same conclusion as Barclays.
There is a way to take advantage of the discrepancy. The next time the broad class of emerging markets skyrockets (perhaps that time is now), lighten up on positions in markets that are conspicuously unlike those that Barclays highlights.
When emerging markets plummet, as they did in 2008 and will certainly do again, use the list as a tour guide for a bargain-hunting expedition.
Conrad de Aenlle writes from Los Angeles about investment and personal finance issues. His blog on contrarian investing for MoneyWatch.com, "Against the Grain," can be found at http://bit.ly/NjaBa
Match info:
Burnley 0
Manchester United 2
Lukaku (22', 44')
Red card: Marcus Rashford (Man United)
Man of the match: Romelu Lukaku (Manchester United)
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
THE SPECS
Engine: 1.5-litre, four-cylinder turbo
Transmission: seven-speed dual clutch automatic
Power: 169bhp
Torque: 250Nm
Price: Dh54,500
On sale: now
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Key fixtures from January 5-7
Watford v Bristol City
Liverpool v Everton
Brighton v Crystal Palace
Bournemouth v AFC Fylde or Wigan
Coventry v Stoke City
Nottingham Forest v Arsenal
Manchester United v Derby
Forest Green or Exeter v West Brom
Tottenham v AFC Wimbledon
Fleetwood or Hereford v Leicester City
Manchester City v Burnley
Shrewsbury v West Ham United
Wolves v Swansea City
Newcastle United v Luton Town
Fulham v Southampton
Norwich City v Chelsea
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
COMPANY%20PROFILE
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When Umm Kulthum performed in Abu Dhabi
Known as The Lady of Arabic Song, Umm Kulthum performed in Abu Dhabi on November 28, 1971, as part of celebrations for the fifth anniversary of the accession of Sheikh Zayed bin Sultan Al Nahyan as Ruler of Abu Dhabi. A concert hall was constructed for the event on land that is now Al Nahyan Stadium, behind Al Wahda Mall. The audience were treated to many of Kulthum's most well-known songs as part of the sold-out show, including Aghadan Alqak and Enta Omri.
Paatal Lok season two
Directors: Avinash Arun, Prosit Roy
Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong
Rating: 4.5/5
THE SPECS
Engine: 1.5-litre
Transmission: 6-speed automatic
Power: 110 horsepower
Torque: 147Nm
Price: From Dh59,700
On sale: now
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, Leon.
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
MATCH INFO
Day 2 at the Gabba
Australia 312-1
Warner 151 not out, Burns 97, Labuschagne 55 not out
Pakistan 240
Shafiq 76, Starc 4-52
Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
The%20specs
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HAJJAN
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What went into the film
25 visual effects (VFX) studios
2,150 VFX shots in a film with 2,500 shots
1,000 VFX artists
3,000 technicians
10 Concept artists, 25 3D designers
New sound technology, named 4D SRL
FROM%20THE%20ASHES
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Director: Paul Weitz
Stars: Kevin Hart
3/5 stars
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Poacher
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Australia tour of Pakistan
March 4-8: First Test, Rawalpindi
March 12-16: Second Test, Karachi
March 21-25: Third Test, Lahore
March 29: First ODI, Rawalpindi
March 31: Second ODI, Rawalpindi
April 2: Third ODI, Rawalpindi
April 5: T20I, Rawalpindi
THE%20HOLDOVERS
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