Research & Insight

The MSCI Asia ex Japan second quarter index performance (+34.89 in USD) was the best quarter since 1993. Emerging market equities had their best quarterly gain (+33.6% in USD) since the 1988 inception of the MSCI EM index. The main drivers of this rally have been the bank recapitalisations and quantitative easing within the G7 and possible ending of the US recession, while China appears to be recovering strongly. During the quarter, US equities rose 15% while the USD fell 6%, EMBI spreads tightened and oil prices and the Baltic Freight index surged. Thus during the quarter Asia and emerging markets outperformed developed, small cap beat large cap, financials and cyclicals beat defensives.

In our previous quarterly we built the case for improved economic prospects and an increase in exposure to emerging market debt, whose prices then reflected a substantial risk of a global economic and financial meltdown. Since that report, data has confirmed an economic bottoming, meltdown has been averted, and emerging market asset prices have surged. At this point, markets seem to be questioning whether the rally has gotten ahead of itself, and whether the road back to recovery may be longer and harder than previously thought, especially with higher energy prices and mortgage rates. One has to remember that the market was overdue for a breather. We certainly do not think the spring rally was simply a blip in a longer bear market. After all, funding costs continue to fall, risk indicators remain tame and the cost of capital is still declining for banks.

The institutional investment world may have been eagerly awaiting the results of the protracted MSCI Barra conclave (also known as the Market Classification Consultation – a twelve month process, with preliminary conclusions presented after six months in December 2008) on whether the stock market of the Republic of Korea (RoK) should be reclassified as a “developed market”, thereby joining the MSCI World Index, or whether it should remain in division two, another year of losing out in the play-offs and more “emergence as usual”! Then again, the investment world may not have been waiting – there is after all, a lot of other stuff going on!

This article was first published in Pensions Management, June 2009.

In 1820, today’s emerging economies accounted for more than 80% of global GDP. With the onset of the industrial revolution, these inventive and enterprising countries turned inward and ultimately lost their leadership position in the global economy. But in recent times, emerging markets have re-emerged to - from their perspective - regain their rightful place in the economic world. Today, they account for more than 50% of global GDP, up from 38% in 1950.

This article was first published in European Pensions, June 2009.

The Congress led United Progressive Alliance’s (UPA) landslide victory in the Indian General Election represented a major rejection by the Indian people of the BJP-led National Democratic Alliance (NDA) and various other regional and communist parties who banded themselves rather indulgently as third and fourth fronts.