Please Note: This is a general commentary based on the analysis and opinions of the fund management team of the Kotak group and is not intended as a recommendation or for the purpose of soliciting any action in relation to any investments, or to be otherwise relied upon for any purpose. No liability is owed to any persons in respect of the content on this page. Kotak Mahindra (UK) Limited is authorised and regulated by the Financial Services Authority in the United Kingdom, by the Dubai Financial Services Authority and by the Monetary Authority of Singapore. Kotak Mahindra Inc is a member of FINRA.
Since the turn of the millennium, emerging markets across Asia, Europe and Latin America have attracted a great deal of global investor attention.
Receding inflation prospects, pro-growth fiscal policies, solid corporate earnings, evolving domestic demand, a still- intact economic growth story, relatively low "free floats" and low valuations all suggest that the emerging-market equity story still has legs.
In terms of FDI flows to Asia; China, Hong Kong, Singapore and India will remain the biggest beneficiaries till 2010, with FDI to India likely to grow the fastest, given that its past FDI inflows were low compared to those in the other three countries (Source: S&P ,Feb 2007)
Faster growth than developed countries spells superior investment returns. During the 20 years through the end of August 2008, the MSCI Emerging Markets Index had an average annual total return of 13%, measured in dollars. That compares with an 8.1% average annual total return in developed markets, as measured by the MSCI World Index. Comparable numbers for the past 10 years are 18% for emerging-market equities and 5.8% for major stock markets.
The recent results, however, don’t look as good. Emerging stock markets (Nomura Equity Market Index) tumbled 57% in 2008 through 31st October, led by declines of 64% in China, 65% in Russia and 61% in India (In USD terms. Source: Bloomberg). Slowing global growth, high inflation rates, central bank battling the price increases with tighter monetary policies — which damp domestic growth — are behind the market declines.
Declining energy and food prices are likely to ease inflation pressures. We believe there should also be a significant easing off pressure on oil related subsidies. This should, in our opinion, permit emerging-market central banks to loosen policy and also governments to provide some sort of fiscal stimulus.
Meanwhile, many developing nations continue to be blessed with high levels of savings and current-account surpluses. Several are increasing government spending, especially in areas such as infrastructure. Emerging-market countries, in our opinion, enjoy a liquidity advantage in the form of large foreign-exchange reserves, sovereign wealth funds and a sound banking system. We believe that should boost growth, which will likely continue to surpass that of developed countries in the years to come.
The content on this page is based on the analysis and opinions of the fund management team of the Kotak group and is not intended as a recommendation or for the purpose of soliciting any action in relation to any investments, or to be otherwise relied upon for any purpose.
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The content on this page is based upon sources of information believed to be reliable. However, no representation, undertaking or warranty (express or implied) is given as to its accuracy or completeness, and the content may change without notice. No liability is owed to any persons in respect of the content on this page. Kotak Mahindra (UK) Limited is authorised and regulated by the Financial Services Authority in the United Kingdom, by the Dubai Financial Services Authority and by the Monetary Authority of Singapore. Kotak Mahindra Inc is a member of FINRA.