2017年10月17日星期二
 
專家論市
Martin Hennecke
Martin Hennecke
Chief economist at The Henley Group mwh@thehenleygroup.com.hk
"We have recently seen significant turmoil in emerging market currencies and equity markets which has made headlines around the world."

Emerging markets mayhem can offer rich pickings
10/02/2014


We have recently seen significant turmoil in emerging market currencies and equity markets which has made headlines around the world.

The plunge has sparked investor fears of a potential repeat of major domino-style emerging market collapses such as those seen during and immediately after the 1997 Asian financial crisis.

But rather than engage in blind panic-selling or avoiding emerging markets altogether, one should analyze the situation with a cool head and seek out opportunities offered by the recent market volatility.

We have to remember, not all emerging markets are equal.

In fact, during the past 17 years some have developed into major economic powerhouses, with huge manufacturing bases to fall back onto and massive foreign exchange reserves. No longer will such nations face a shortage of hard currency reserves.

Moreover, some of these markets are clearly not overvalued. Some appear to be significantly underpriced.

Among the key factors determining the external vulnerability of emerging market countries to a financial crisis are their current account balance and foreign exchange reserves versus short-term external debt.

When we review these factors we find that Turkey is indeed a particularly vulnerable candidate.

It has a a current account deficit of 7.3 percent and a low foreign exchange reserves to external short-term debt ratio. South Africa, India and Indonesia look a bit better but are still relatively weak as well.

South Korea, Russia and China, on the other hand, stand out as having both a positive current account and a healthier foreign exchange reserves to short-term external debt position.

China and Russia also happen to be the world's largest and third-largest holders of foreign exchange reserves. In addition, they have low debt-to-GDP ratios.

These three markets also happen to be the most attractively valued markets among both emerging and developed countries globally.

Russian stocks are presently trading at a deeply discounted 2014 forward price-to-earnings ratio of 4.8 and a price-to-book ratio of 0.7.

Mainland shares are trading at a P/E ratio of nine and a P/B ratio of 1.5 while those of South Korea are at a P/E of 8.6 and P/B of 1.1. For comparison, the average P/E ratio of global equity markets put together now stands at 13.8 with a P/B ratio of two.

Accordingly, investors should carefully evaluate the risks and opportunities prevalent in the different markets.

Then they should accumulate positions in those areas supported by strong fundamentals on one hand and outstandingly attractive prices/valuations on the other.

Of course, emerging markets come with various risks and relatively high volatility. Hence, such investments would only be recommended for the medium to longer term, as part of a diversified portfolio and without the use of leverage.

However, having said this, it must be understood as well that investments in developed markets are not risk-free either.

When buying into such markets at higher prices, the implied risk may not necessarily be lower than that of buying into markets of somewhat higher volatility but lower prices.

Moreover, the risk of holding one's wealth mainly in cash or bonds often tends to be underestimated as well.

In fact, if interest rates and inflation should rise, then it is exactly these two asset classes that may be most at risk and vulnerable out of all.

Equities on the other hand have the ability to float on inflation over the long term.

They, after all, represent part ownership of companies, which mostly own inflation-proof tangible assets and can pass rising input costs on to consumers in the form of higher prices for goods and services.
 


其他文章:
Land of the rising debt - 28/07/2014
Hong Kong property - the cheapest in the world? - 12/05/2014
Ukraine-Russia tiff: turning crisis into opportunity - 31/03/2014
>> Emerging markets mayhem can offer rich pickings - 10/02/2014
Specter of default dogs West as forecasts come true - 18/11/2013
China equities trumpeted for second glance - 21/10/2013
It ain't over till the fat ladies sing - 17/06/2013
Golden time to load up - 04/03/2013
Shale gas unlikely to wipe sheen off Russian shares - 18/02/2013
Games of distraction - 03/12/2012
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