Worse to come for EM stocks, says ADIA
The Abu Dhabi Investment Authority — one of the world’s biggest sovereign wealth funds — casts doubt on the buying opportunities in emerging markets
Emerging equities have further to fall, Abu Dhabi Investment
Authority's head of internally managed equities, Greg
Eckersley, has told LatinFinance.
Eckersley said the sell-off from emerging markets has meant
some attractive valuations of companies ADIA likes, which he
said could be a good opportunity for longer-term investors. But
Eckersely said it was not yet "time to call the bottom" of the
market for emerging equities.
Valuations of consumer-orientated stocks may have traded too
high to sustain investors' interest as domestic demand changes,
said Eckersley - but he was uncertain whether this meant it was
the best time to buy export-orientated stocks.
"Rate hikes and currency devaluations will have a natural
impact, but the policy response takes time, and I'm not sure
[policymakers] have taken all the necessary steps," he said.
"So far many emerging markets have tried to prove there is no
problem and they don't need to react."
Eckersley gave India and Indonesia as examples of countries
that have acted, and where investors were buying back in (by
February, Indonesia's stock index was up 6% year to date). But
in Brazil, Eckersley said the reaction was more ambiguous.
"The central bank [in Brazil] has managed a difficult
situation well, but it's all about the policy environment
post-election. Ahead of the elections I doubt much will
change," he said.
This contrasted with the view offered by Jan Dehn, head of
research at emerging-market fund manager Ashmore. Dehn said
countries like Brazil had already adjusted for a longer-term
rebound. Local currency bonds were trading far above a level
justified on the basis of US rate expectations, he said.
"They've all raised rates, devalued their currencies, and
adjusted fiscal spending," Dehn said. "Emerging markets don't
have the structural rigidities [of developed markets]. They
don't have huge benefits systems, and they have very flexible
labor markets. They adjust very quickly."
But February's recovery in emerging market asset prices was
a dubious rebound, and unlikely to be sustained, he said, as it
was predicated on weak US economic data and dovish comments
from Federal Reserve chairwoman Janet Yellen - whose more
recent comments were seen as relatively hawkish.
"The 'end-of-the-emerging-markets-era' trade is still there.
The underlying rationale [for the sell-off] has not been
Bankers described novel support tactics necessary
to push through equity market transactions after the
sell-off. In the debt markets, analysts said
rate differentials could still attract investors to local
currency bonds, but external issuance would drop.
"With the winding down of QE we'll probably have higher
interest rates and higher financing rates than the ones we have
enjoyed in the past few years,"
said Michel Janna, Colombia's director of public credit.
"But it's the new equilibrium; it's the new reality and we have
to be ready for that." LF
Latin America's capital markets are facing a sell-off in
emerging markets as indiscriminate as the bull phase it
succeeded. But as returns dwindle, asset buyers will have to
become more discerning
EQUITY: Courting capital
Talk of an investor capitulation is intensifying as
investors exit Latin American equities - although no-one, yet,
has called it. For Latin companies raising equity in 2014 will
be a tough game. Those that can are looking elsewhere
LOCAL CURRENCY DEBT: Pick and choose
Currency volatility means foreign investors are shying
away from local government bond markets - exaggerating
differences between countries