Emerging-market stocks seen overcoming ‘darkest hour’ next year

by **Cals** Sat 05 Dec 2015, 00:29

Emerging-market stocks seen overcoming ‘darkest hour’ next year

By Bloomberg / Bloomberg | December 4, 2015 : 9:55 PM MYT

NEW YORK (Dec 4): Five years is long enough to wait for emerging-market stocks to regain some relative strength, according to Alexander Redman and Arun Sai, analysts at [size=16]Credit Suisse Group AG.

The ratio between the MSCI Emerging Markets Index and its developed-market counterpart, the MSCI World Index, peaked in October 2010 and then tumbled 48 percent through last month. November ended with the ratio at its lowest level in a decade, as depicted in the chart below, which covers the entire history of the emerging-market index.

“Emerging markets appear to be in the midst of their darkest hour,” Redman and Sai wrote three days ago in a report. Declining currency values and lower profit margins have hurt the shares this year, as they have throughout the past five years, the London-based analysts wrote. “However, we are confident that for both these drivers the worst is behind us.”

Developing-country currencies are little changed this quarter after declining in 11 of the last 12 quarters, according to an index compiled by JPMorgan. Profit margins for the MSCI emerging-market gauge set a five-year low in last year’s fourth quarter, according to data compiled by Bloomberg.

Redman and Sai expect the MSCI index to end next year at 960, about four points higher than its 2014 close. Investors should favor China, India, Mexico, Malaysia, South Korea and Turkey while avoiding Brazil, Russia, the Philippines, Poland and Thailand, the London-based strategists wrote. They were neutral on China, Indonesia, South Africa and Taiwan.

To be sure, they forecast a year ago that the emerging-market index would end 2015 at 1,075, up 12%. Instead, the barometer dropped 14% through yesterday. It’s headed for a third straight annual decline, the longest losing streak since a 2000-2002 bear market in stocks worldwide.
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