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Emerging Markets Set to Continue to Outperform in 2015

The past 4 years from 2010 to 2013 have been watershed years for Emerging Markets (EM).  Their underperformance were due to a combination of China’s slowdown, wild currency swings and capital outflows on the back of QE tapering leading to possible interest rates increases in the US in 2015.

The MSCI EM Index has underperformed the MSCI World Index severely from 2010 to 2013.  For instance, the MSCI EM Index registered losses of 18.42% in 2011 and 2.6% in 2013 while the MSCI World Index made gains of 22.8% in 2013.  Other than these 2 years, the MSCI EM has largely outperformed the MSCI World in the past decade.  As predicted in my May 2014 article (http://www.einvesthub.btinvest.com.sg/experts-of-the-month/face-off-for-emerging-markets-in-2014), EMs have managed to reverse and started outperforming again in 2014 and I expect it to continue into the new year. 

MSCI EM Index, propelled by Brazil, India and China, ended Nov 2014 up about 11% vs the 6% gain of the MSCI World Index. 

To me, the popular media often misses the wood for the trees – while China is expected to post lower GDP growth at 7.0% - 7.4%, many missed the fact that the 2nd largest economy in the world will now show better quality growth, one that captures higher services contribution, a sign of a more maturing economy, away from the low-manufacturing cost base.

Moreover, corporate earnings in key EM like India, Indonesia and Brazil which nose-dived at end-2013, have started to reverse and are climbing a nice upward trajectory, powered by structural reforms put in place by new governments of Narenda Modi in India and Jokowi in Indonesia.  With a fresh election mandate, the Brazil government is expected to kick-start reform process which can be positive for economies and stockmarkets.

India’s BSE Sensex Index ended Nov-2014 at 28,693 points, up a whopping 7,523 points from 2013 close of 21,170 points. while Indonesia’s JCI surged 20% to close at 5,149, up from 2013 close of 4,274.   Brazil Bovespa Index also ended Nov-2014 up 3,479 points to close at 54,664 points, up from end 2013 close of 51,185 points.  Smart early foreign investors, who can forsee such changes, would not only have made good money on the various EM stockmarkets, but also in their respective currencies which have appreciated against the US$ and Euro in 2014. 

I continue to love to invest in EM as the volatile nature of their currencies and stockmarkets make them good vehicles to take tactical bets in one’s investment portfolio.  In fact, my 2 decades  experience of contrarian investing in EM has psychologise myself to wait patiently for severe market upheavals to cherry pick stocks and currencies when news are bad as often, popular media often over exaggerate the severity of each upheaval.

For instance, we had market tumultuous events in Turkey, South Africa, Indonesia, Brazil and India in 2013.

In 2014, we had Russia and Ukraine.

For sure, there will be opportunities in 2015.  So be prepared as price corrections reward the brave souls with prepared minds.

Happy Investing in the New Year.

Gabriel Yap
Gabriel Yap

Mr Gabriel Yap,CFA was an eminent stockbroker who retired from stockbroking in 2009 to devote himself to philanthropy to help the needy, poor and handicap globally. He has donated and assisted Charities Aid Foundation, Australia (CAF), a not-for-profit donor funds management business.  

Mr Yap is also Executive Chairman of GCP Global Pte Ltd, an investment firm that invest in both direct capital markets, bonds, real estate, commodities, foreign exchange and builds businesses. Mr Yap appears regularly for the TV media like Channel News Asia and Bloomberg and radio channels like FM93.8 for their various investment programs.

Previously Mr Yap has also lectured at renowned government institutions like the SEASEN Course for the Monetary Authority of Singapore and at AsianDevelopment Bank. Mr Yap has also lectured at financial institutions like the Stock Exchange of SingaporeInstitute of Banking and Finance, the Institute of Certified Public Accountants, the Singapore Institute of Management and the Securities Investors Association of Singapore.

In 2010, the venerable Reader's Digest magazine created the Money Savvy column in their magazine, helmed by Mr Yap who writes on all things finance and answers questions from the magazine's subscribers.

Mr Yap presently splits his time between Melbourne, Europe and Singapore.