There’s more information coming out to give more credence to the talk that global wealth and growth will stem from emerging rather mature markets for the next few years.
Morgan Stanley is reporting that emerging-market stocks may rise 39 percent by year’s end 2012. They see a “soft landing” for China’s economy, earnings growth and cheap valuations as the main reasoning behind the assessment.
21 emerging country indices
The Morgan Stanley Capital International (MSCI) Emerging Markets Index is a free float-adjusted market capitalization index designed to measure the equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.
According to Jonathan Garner, Morgan Stanley’s chief emerging market and Asia strategist, the MSCI Emerging Markets Index may jump to 1,355 by the end of next year – up from the 976.86 it closed at this Monday. Morgan Stanley is now in agreement with UBS AG (NYSE: UBS, Stock Forum) in favouring Chinese stocks for next year founded in the confidence the government will loosen monetary policies to support Asia’s biggest economy.
Garner, who’s based in Hong Kong, went on to say, “Inflation is probably going to fall going forward and we hope for a soft landing in growth… We should be in a better environment for the stock market.”
Why all the optimism?
The MSCI developing nation index has rallied 17 percent from this year’s low early last month. Policymakers from China to Indonesia and across the rest of Asia have moved to bolster economic growth by not raising borrowing costs or even lowering them. Garner suspects the rally has already begun from the low in early October.
As you expect, Morgan Stanley favours China most among emerging markets in Asia and its consumer companies. The Shanghai Composite Index has risen more than nine percent from this year’s low on October 21 as inflation slowed and the government announced measures to help small businesses attain easier access to bank loans. The Hang Seng China Enterprises Index of Chinese companies – listed in Hong Kong – climbed 15 percent since its year’s low.
As far as inflation is concerned, China’s consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July. The slowdown in inflation gives the Chinese government more flexibility with monetary policy, which will help as the ever-looming European sovereign debt problem will hurt exports.
“We expect a soft landing in China and earnings growth should hold up very well in this environment, we think the market is too cheap,” said Garner. China may cut interest rates in the first half of 2012, he told Bloomberg.
UBS also prefers China, along with India and Brazil, among emerging markets for 2012. With such a broad investment spectrum, this would probably be a good time to go with a fund such as the Templeton Emerging Markets Fund (NYSE: EMF, Stock Forum) or the Vanguard Emerging Markets Stock Index (VEIEX) to have across the board exposure. For direct exposure to the MSCI Emerging Markets Index, there’s a fund – the MSCI Emerging Markets Index Fund (NYSE: EEM, Stock Forum).