WARNINGS that emerging markets are inching toward bubble territory are misplaced so far but the volume of securities on offer must rise fast to accommodate the new cash that is expected to join the sector in coming years.
Emerging assets have become very desirable as the financial crunch damaged western balance sheets and budgets and further enhanced the relative growth attractions of the emerging world.
With emerging markets roaring back from the slump of 2008, crises in the likes of euro zone mem- ber Greece -- and also two years ago in Iceland -- have challenged decades-old assumptions that sovereign risk was inherent only to developing economies.
In theory, that should be a positive for emerging markets, which are on the whole, hugely underrepre- sented in global portfolios, especially of more conser- vative but cash-rich investors such as pension funds.
But the reality is that relative to the developed world, emerging bond, stock and currency markets remain underdeveloped, small and illiquid. Which means a large-scale cash influx can quickly inflate asset prices to unsustainable levels, risking a repeat of the familiar boom-bust emerging market cycles.
"Too much money chasing too little market cap -- potentially it's a concern," said Michael Wang, emerging equities strategist at Morgan Stanley. "It was a concern in 2007-2008 when there was a lot of euphoria over emerging markets and this wall of money came in. We are starting to see that kind of euphoria again."
The 37-country MS- CI emerging markets index has market capi- talisation of $3 trillion -- just over a tenth of the MSCI World's $20.5 tril- lion and a third of the US S&P 500. And the $5.5 trillion in local currency bonds issued by every emerging nation in the world are worth less than the US treasuries outstanding.
Flows are tipped to grow, as the pull of emerging markets -- rising incomes, growth, relatively sound public finances -- coupled with "push" factors from the developed world -- anaemic growth, falling popu- lations and rising debt.
Emerging equity and bond funds got inflows of $75 billion in 2009, dwarfing all fund groups except US bond funds.
This year, private capital flows -- direct and portfo- lio investments -- to emerging markets will rise 66 per cent to $722 billion, the Institute for International Finance (IIF) says. That is over three times more than levels a decade ago, IIF data shows.
There are signs pension funds, pressured to boost returns, are increasing emerging market allocations -- a Barings study last November found a third of UK pension funds would consider investing in emerging markets, up from under 5 per cent in 2007.
The problem is that even a small re-allocation from a deep market to a relatively shallow one can cause substantial swings.
Take for instance pension funds. With $23 trillion in assets globally, just a 1 per cent extra allocation to emerging stocks would bring inflows of $230 billion -- almost a tenth of the existing market capitalisation of the MSCI EM.
Volumes of existing securities would have to rise by a comparable amount, possibly via stock listings, to avoid the wild swings such large-scale capital inflows would cause.
"With all this money flowing in, we are going to see an inflation of price-earnings ratios," said Robert Ruttman, emerging equities strategist at Credit Suisse.( the bottomline is grab stock having low p/e as they will have a long way to go...from low p/e to average p/e and then inflate p/e and I have not to mention which can be those!)
"It is important to watch earnings growth relative to volume of funds coming in."
So far he says valuations are looking fair around 11.5 times one-year forward earnings or a 13 per cent discount to developed stocks and a 10 per cent below their own historical average.
If earnings keep up, emerging markets could justi- fy a premium to developed markets on a P/E basis, ana- lysts say.
"A bubble implies there is not a fundamental under- pin to the price," Wang said. "At the moment this is not the case."
My Comments:
I think everything is there to read.I have already highlighted it......what one needs to do is just take the clue....for e.g..it is written about Pension Fund....having $23 trillion asset globally and even 1% will bring in $230 bn!
So read this post properly and take clue....... 
Emerging assets have become very desirable as the financial crunch damaged western balance sheets and budgets and further enhanced the relative growth attractions of the emerging world.
With emerging markets roaring back from the slump of 2008, crises in the likes of euro zone mem- ber Greece -- and also two years ago in Iceland -- have challenged decades-old assumptions that sovereign risk was inherent only to developing economies.
In theory, that should be a positive for emerging markets, which are on the whole, hugely underrepre- sented in global portfolios, especially of more conser- vative but cash-rich investors such as pension funds.
But the reality is that relative to the developed world, emerging bond, stock and currency markets remain underdeveloped, small and illiquid. Which means a large-scale cash influx can quickly inflate asset prices to unsustainable levels, risking a repeat of the familiar boom-bust emerging market cycles.
"Too much money chasing too little market cap -- potentially it's a concern," said Michael Wang, emerging equities strategist at Morgan Stanley. "It was a concern in 2007-2008 when there was a lot of euphoria over emerging markets and this wall of money came in. We are starting to see that kind of euphoria again."
The 37-country MS- CI emerging markets index has market capi- talisation of $3 trillion -- just over a tenth of the MSCI World's $20.5 tril- lion and a third of the US S&P 500. And the $5.5 trillion in local currency bonds issued by every emerging nation in the world are worth less than the US treasuries outstanding.
Flows are tipped to grow, as the pull of emerging markets -- rising incomes, growth, relatively sound public finances -- coupled with "push" factors from the developed world -- anaemic growth, falling popu- lations and rising debt.
Emerging equity and bond funds got inflows of $75 billion in 2009, dwarfing all fund groups except US bond funds.
This year, private capital flows -- direct and portfo- lio investments -- to emerging markets will rise 66 per cent to $722 billion, the Institute for International Finance (IIF) says. That is over three times more than levels a decade ago, IIF data shows.
There are signs pension funds, pressured to boost returns, are increasing emerging market allocations -- a Barings study last November found a third of UK pension funds would consider investing in emerging markets, up from under 5 per cent in 2007.
The problem is that even a small re-allocation from a deep market to a relatively shallow one can cause substantial swings.
Take for instance pension funds. With $23 trillion in assets globally, just a 1 per cent extra allocation to emerging stocks would bring inflows of $230 billion -- almost a tenth of the existing market capitalisation of the MSCI EM.
Volumes of existing securities would have to rise by a comparable amount, possibly via stock listings, to avoid the wild swings such large-scale capital inflows would cause.
"With all this money flowing in, we are going to see an inflation of price-earnings ratios," said Robert Ruttman, emerging equities strategist at Credit Suisse.( the bottomline is grab stock having low p/e as they will have a long way to go...from low p/e to average p/e and then inflate p/e and I have not to mention which can be those!)
"It is important to watch earnings growth relative to volume of funds coming in."
So far he says valuations are looking fair around 11.5 times one-year forward earnings or a 13 per cent discount to developed stocks and a 10 per cent below their own historical average.
If earnings keep up, emerging markets could justi- fy a premium to developed markets on a P/E basis, ana- lysts say.
"A bubble implies there is not a fundamental under- pin to the price," Wang said. "At the moment this is not the case."
My Comments:
I think everything is there to read.I have already highlighted it......what one needs to do is just take the clue....for e.g..it is written about Pension Fund....having $23 trillion asset globally and even 1% will bring in $230 bn!
So read this post properly and take clue.......
Smiles and Tears seldom go togather but when they meets they create the most gorgeous moment of the universe....
RAJEEV VERMA's mail came last night and my chart was ready before it and see how his analysis blends with mine. Great work Rajeev.
Trade this zone initially and we will follow these prices..
Trade this zone initially and we will follow these prices..
I have done a small weekly analysis based on 5ema system,pivot points and important levels that u have been teaching us.Kindly go through it –
1.In this month of Feb,till date we are down only 40 points or less than a percentage.the markets have been range bound in 200 point range though very choppy.
2.Coming week has monthly as well as derivates expiry.with budget coming up,it will be a range bound week.
3.I find that weekly close is below weekly close ema of 4885,and daily close also below close ema of 4856 ,suggesting that daily rallies will be sold into and hrly rallies will be sold into till daily closes above 5ema.
4.As weekly TA is down,whenever nifty reaches weekly ema of 4885 chances are strong of a sell off.this level incidentally matches 20ema of 4890 and daily high ema of 4885.thus giving a strong resistance.also we have seen last week’s weakness creeping in below this level.so 4885-4890 can be taken as strong resistance.
Closing above it can take to 4915,which is 5day high close and weekly pivot R1 of 4922.
5.As we can assume by weekly TA that low ema may be brought into, weekly low ema comes at 4798,which is also near weekly pivot S1 of 4776 and a previous important support of 4780-90.so we can assume we will get fair support at 4775-90.
Below which 4740 and 200DMA of 4720 will provide support.
6.This week may be a rangebound one, largely in the range of 4775-4890.
Also I have some observations on long term charts based on Trendlines and Moving Averages----
1.Firstly I find that the major trendline giving support since march’09 has broken in Jan’10 end, at level of 5200.
2.Since than Nifty has, for the first time after March’09--
- A bearish crossover of 20D and 50D ema averages,
- A bearish crossover of 5W and 13 W ema averages,
-Closing below a support line of 20W average (now 4weeks in a row)
3.Recently in Feb,a triple MA bearish crossover of 20Dema,50Dema,100Dma has happened.
4.All the above point out to significant change in structures of charts to a midterm bearish scenario for the first time since march’09..
5.Now the nifty has been supported near 200dma in last correction before moving up.The resistances to this upmove can be 50ema of 4985,100dma of 5015 , the support now turned resistance of 20week average at approx.5000.and also 50% retrace of fall from 5310-4675 at approx 5000
6.I am of the opinion that any corrective rally which goes upto 5000-5025 levels should be sold into positionally.With the major event like the annual budget coming up can mark the final reversal of this market to a midterm bearish one.
Sir,kindly see for corrections in my view and tell me if EW theory is suppoting this outlook.Though we should be flexible with our views but if there is going to be a significant trend change or its building up now our Blogmates can be cautious and can take benefit of it.Incidentally Jan-Feb’08 had similar traits as mentioned in 2010 markets above .
