Research & Insight

Investors definitely needed hard hats and strong stomachs during the third quarter. MSCI EM Index fell 22.46% over three months and underperformed the World index by some 6%. Investor sentiment was battered by a trilogy of worries – Euro sovereign debt, slowing Chinese economic growth and fears of a second US recession. After a weak August, falls in emerging markets were exacerbated in September by a flight to the perceived safety of the US Dollar - the resulting outflows of capital led to emerging market currencies falling by -7.8% against the USD, including some dramatic moves in the Brazilian Real (-15.5%) and South African Rand (-13.7%) over the month.

MSCI Asia ex Japan fell sharply, down 20.9% for the quarter. Starting with fears over political impasse in the US, this rolled into escalating concerns over European policy paralysis and then into China hard landing prospects. This mix has been a potent negative for our markets with all of them falling meaningfully. China (-22.9%) led the way down, but in general, open and liquid markets fared amongst the worst (Korea, Taiwan, Hong Kong) while the smaller Asean markets (Indonesia and The Philippines) fared relatively better.

Thailand is suffering with the worst flooding in 50 years, which has already displaced over 2 million people, killing nearly 300. There is no sign of let up and the country is bracing itself for worse. While 30 of Thailand’s 77 provinces have been severely affected, Bangkok is now bracing itself, as floods from over-spilling dams in the north of the country are expected to affect the city in the coming days. 15% of farmland is affected and evacuation centres around the country are being set up. The government has started to bolster Bangkok’s flood defences.

Pension funds looking for reliable returns in a time of economic turbulence in Europe and North America should embrace emerging market debt, says the head of Rexiter asset management.

South Africans don’t need much of an excuse for a party and as next January marks the one hundredth anniversary of the founding of the ruling African National Congress (ANC), the Capes’ vineyards are certain to be doing great business come 2012. However, although it is now seventeen years since Mandela’s historic election victory in 1994, not all South Africans will be drinking hard to celebrate. Over half of the country’s youth remain unemployed, their futures bleak, and there is a growing sense that black empowerment is an ideology now abused to help the privileged few rather than the impoverished many.