Friday, January 8, 2010

An emerging theme, tinged with surprises

Fri, Jan 08, 2010
The Business Times


(SINGAPORE) The year gone by belonged to the emerging - and, on occasion, the outright baffling.When Brazilian equities shot up 144 per cent in 2009, market watchers probably didn't bat an eyelid. But when the Sri Lankan market followed closely with a 119.6 per cent surge, they must have done a double-take.

While the BRIC nations (Brazil, Russia, India and China) were solidly represented in the top 10 performing global markets in US dollar terms, developed markets ended the year with relatively tepid returns like the Dow Jones' 18.8 per cent increase and the FTSE 100's 37.5 per cent gain, according to data from Bloomberg.

'Generally, equity market performance in 2009 was first and foremost a risk aversion story. The riskier markets - small and less liquid emerging markets - did perform best, but they were also the markets that suffered the most during the credit crisis when investors were rushing for safe havens,' said Thomas Kaegi, UBS Wealth Management Research's head of macroeconomic research for Asia-Pacific.

For outpacing the MSCI Emerging Markets Index's growth of 74.8 per cent, some of the biggest winners of 2009 have a large domestic market to thank.

'In economies like Indonesia and China, the story of domestic strength was crucial to the crisis of 2009, and people bought it,' said Tai Hui, Standard Chartered's regional head of economic research, Southeast Asia.

Sri Lanka was a 'notable exception', observed Mr Kaegi. 'The end of a decade-long conflict helped to shore up market confidence,' he said.

Following an end to the civil war last May, the Colombo All Share Price Index hit a record high last year on Dec 30, at 3,390.31 points.

Beyond the list, the numbers are no less fascinating. While the Gaza Strip situation remains murky, the capitalist market outcomes were crystal-clear - Israel's Tel Aviv 25 Index gained 72.9 per cent, while the Palestinian Al-Quds Index rose almost 12 per cent.

Iceland's OMX Iceland All-Share PR Index lost a relatively tame 15 per cent in value over 2009, having done most of its plunging in October 2008, when it shed 72 per cent of market capitalisation.

2009 was also a year in which it was possible for some countries to outdo Iceland in terms of dismal returns. Nigerian equities lost almost 40 per cent of their value and the Slovakian market shed about 20 per cent.

In Asia, China and India made their presence felt on the top 10 list of gains. Singapore, even with a robust 70.8 per cent gain, was pushed into eighth place.

The Hang Seng Index, which made a spirited 52 per cent comeback in 2009, is nowhere to be found on the list, and is also outperformed by Bangladesh's Dhaka Stock Exchange, which gained about 65 per cent.

While Asia will be on a more stable recovery growth path in 2010 compared to the other regions, according to Standard Chartered's Mr Tai, he noted that for Singapore, Hong Kong and Taiwan, 'recovery will be more choppy and this could translate to the equities market', due to their greater exposure to the US and European economies.

Even so, the generally positive market sentiment this year comes tagged with a caveat, warned Mr Tai. 'There will be a huge amount of volatility when central banks start their exit strategy. When that comes, the market could react negatively,' he said.

The recovery story will not be as pronounced this year, according to Mr Kaegi of UBS.

'It is highly unlikely that we will see returns in 2010 similar to what we saw in 2009. While we stand by our long-term call on Asia, in the medium term, a focus on developed markets may be the better choice later this year,' he said.

This article was first published in The Business Times.

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