Great Graphic: EM vs DM Equities 2015

This Great Graphic was composed on Bloomberg and it shows how performance of the MSCI Emerging Market equity index (white line) and the MSCI  World Index  of developed markets (yellow line).    The two time series are indexed so they start this year at 100.

As of the end of March both had risen by about 2% this year.   However, this month the emerging markets have powered ahead.  The developed index has risen about 2% in the first half of April, while the emerging markets have risen nearly 8%. 

As often is the case, to appreciate what is driving a basket, one needs to examine the components.  The S&P 500 is the largest component of the developed index.  S&P 500 were up almost 2% for the year coming into today's session.  In was essentially flat in Q1.  After the US, the Nikkei is the second largest major equity market.  The Nikkei is up about 3.5% here in April.  It had rallied 10.4% in Q1.

The FTSE has led the G7 equity markets here in April, gaining 4.25%, which is more than it rose in all of Q1 (~3.25%).   German and Italian markets were the strongest in Q1, both rising about 22%.  The strong advance may have discouraged aggressive new buying.  Both are up less than 1% here in April. 

The largest component of the MSCI Emerging Market equity index is China, accounting for nearly a quarter (23%).  Yet, China's mainland "A" shares are not included.  Instead, the H-shares captured by the Hang Seng's Enterprise Index may offer a better proxy.    It is up a little more than 19% here in April.  It was up 3.6% in Q1.   Chinese shares in HK have rallied sharply as Chinese money has poured in ostensibly as a form of arbitrage.  Chinese shares had rallied earlier, creating a large valuation gap that is in the process of being closed.

At the same time, China's "A" shares are continuing to rally.  Both the Shanghai and Shenzhen Composite are up 11.4%-11.9% this month.    Many investors anticipate more monetary stimulus by the PBOC.  In addition, the government appears to be encouraging a shift to exchange-based products as it tries to manage the shadow banking sector. 

Korea accounts for almost 15% of the MSCI EM benchmark.  The Kospi is up 4.8% this month after rising almost 7% in Q1.  Taiwan has about a 12.5% weighting.  It has been a laggard.  It is up about 0.75% this month and was up about 3% in Q1.  

Brazilian equities are the fourth highest weighting in the MSCI EM index.  The Bovespa is up 6.6% here in April, after rising 2.3% in Q1.  India is fifth highest weighting at 7.4%.  Indian equities are up about 2.5% this month, which is about what they did in Q1. 

Foreign inflows into HK and China are not immediately available, but the exchanges report such flows for India, South Korea, Taiwan and Brazil.  Of these, only Taiwan has experienced net outflows by foreign investors this month.  About $419 mln has been liquidated this month after a net inflow of $3.8 bln in Q1.

South Korean equities have seen the most foreign money flow in this month.  The $1.79 bln inflow follows on the heels of $2.62 bln inflow in Q1.  Brazil is close.  Foreign investors bought $1.47 bln of Brazilian shares this month after purchasing $3.30 bln in Q1.  India is still experiencing inflows, but they have slowed sharply.  So far in April, foreign investors have bought about $330 mln of Indian shares.  In Q1 they bought nearly $6 bln. 
Great Graphic: EM vs DM Equities 2015 Great Graphic:  EM vs DM Equities 2015 Reviewed by Marc Chandler on April 16, 2015 Rating: 5
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