The only three rising market stock pickers who avoided losing money for customers in worst rout since 1998 say now’s the time to purchase Indian drug manufacturing companies, Philippine retailers and Chinese Internet firms. Lewis Kaufman, Managing Director and Portfolio Manager at THDAX (Thornbug Developing World Fund) stated that PGOLD (Puregold Price Club Inc.), a Manila-based company will be benefiting from 20% sales growth. CNI Charter Emerging Markets Fund (RIMX)’s Anindya Chatterjee boosted his position in Tencent Holdings Limited, a China based company as initial quarter profit rose 37%. Mr. David Semple has been purchasing Indian pharma stocks for Van Eck Emerging Markets Fund as rupee’s tumble boosts exports.
MSCI (Morgan Stanley Capital International) emerging markets index, which declined 0.5% to 896.40 in Hong Kong, is headed for worst first half since 1998. The gauge has trailed MSCI World Index of developed country shares by 21% points this year through 21st June, the largest gas in 15 years. Emerging markets index is valued at 1.4 times net assets, the lowest level since 2011 and 28% below MSCI World Index, the largest discount since 2005.
Ibovespa of Brazil, Hang Seng China Enterprises and IGBVL (Peru Lima General Index) Index all lost over 19%, the largest declines among 21 emerging market equity measures tracked by Bloomberg. OGXP3 (OGX Petroleo & Gas Participacoes SA), controlled by Brazilian billionaire Eike Batista and the Rio de Janeiro-based oil exploring company, slid 81% for steepest drop in MSCI emerging gauge.
Developing nation bonds and currencies also tumbled in initial part with lira (Turkey) and rupee (India) sinking to record lows against dollar past week. After Ben Bernanke, Chairman at U.S. Federal Reserve mapped out a timetable to end unprecedented bond purchasing program of central bank, even the best performing rising market share funds have declined in June. THDAX fund lost around 8.9% so far in June, whereas Van Eck fund dropped 8.3% and CNI fund slid 8%.
Brevan Howard Asset Management LLP’s $2.7 billion emerging markets hedge fund marketed positions and cut risk by over half it lost 11% in 2013, two people with knowledge of this matter said past week. Geraldine Sundstorm, who oversees the fund for Brevan Howard, A London-based Company, declined to comment. GBRAX (Goldman Sachs BRIC Fund), a $328 million firm which invests in China, India, Brazil and Russia declined 18% for largest drop amongst 92 United States-domiciled emerging stock mutual funds.
Eddie Perkin, Chief Investment Officer for emerging and international markets equity at Goldman Sachs Asset Management stated that as a believer and contrarian in mean reversion, the fact that BRIC markets have underperformed for several years, that makes very interested in those markets.
According to Morgan Stanley, traders withdrew $18 billion from emerging-market stock funds in the last 10 weeks. John Paul Smith, a London-based strategist at Deutsche Bank AG said while the retreat in emerging markets has left stocks oversold; the longer term outlook for asset class is still negative. He also stated that shares marketed in China, the largest emerging market might extend declines.
World Bank lowered its 2013 forecast for growth in China to 7.7% for June, which would be the slowest since 1999, from 8.4% estimate in January. The Washington-based lender cut its prediction for developing nation growth from 5.5 to 5.1%, unlike the 1.2 percent projection for advanced economies.
Kaufman holds shares of MAPI (PT Mitra Adiperkasa), which operates Domino’s Pizza Inc. and Starbucks Corp. outlets across Indonesia and OAO Magnit (MGNT), the biggest food retailer of Russia. Tencent that boosted users of its mobile messaging application by 228% in the initial quarter to 194 million has climbed 15% in 2013. The shares are valued at 25 times estimated 2013 profits vs. 43 times for Menlo Park, California-based Facebook Inc., operator of biggest social network. The biggest listed Internet business of China by revenue, Hong Kong-traded Company was the 4th largest position in CNI fund as of March after Chatterjee boosted holdings in the initial quarter.
Glenmark, Apollo
As per a market research firm, Euromonitor International, consumer spending in emerging markets of Asia will perhaps increase 9.2% on average this year. Mr. Chatterjee said that in this international environment, it makes more sense to focus on domestic demand driven by demography which has covered Asian economies and markets for more than a decade at companies including Jefferies Group LLC and Bear Stearns Cos.
Adverse Conditions
Glenmark that recorded over 70% of its sales outside India in 3 months ended March has climbed 3.1% even as the benchmark Standard & Poor’s 500 BSE Sensex index dropped 3.4%. Chatterjee, Kaufman and Semple said they tend to avoid state-owned organizations as slower economic growth increases the likelihood of wasteful spending and government intervention. China-based China Construction Bank Corp. (939) and Russia-based OAO Gazprom (GAZP), state controlled companies with 2 of 7 largest weightings in MSCI emerging index, dropped over sixteen percent.
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