Have emerging markets entered a new bull market?
Posted on 24 March 2009 with no comments from readers
Templeton Asset Management chairman Mark Mobius has had a long, and at times successful career as a specialist in emerging markets. He says the next bull rally in emerging markets has just started. Should he be believed?
A Reuters report from Shanghai boldly claimed that Dr. Mobius ‘correctly predicted in December that emerging markets will rebound before developed nations’.
That might have been true for China, but Middle East investors have not seen a rally while developed countries have already enjoyed an upturn. Whether any of these rallies is sustainable is another issue entirely.
Gulf stocks up
The Gulf stock markets saw a modest rally of two to six per cent today, mainly on the back of higher oil prices in the wake of the Obama PR machine’s launch of the $500 billion toxic asset plan. That is nice to see but it is hardly a rally to speak of, let alone a new bull market.
Gulf economies are highly geared to the oil price, and there is a six-month time lag between oil price increases and an upturn in the general economy. It is a bit early to see if the Obama plan will turn out to be anything more than hot air, or more likely an expensive waste of US tax payers money.
But let us ask Dr. Mobius a simple question: how can the emerging markets lead the recovery in a year when the World Trade Organization forecasts that global trade will fall by nine per cent, its worst performance since the Second World War?
Trade catastrophe
Are we to imagine that stock markets have instantly discounted this trade catastrophe, and think better times must be around the corner? This is ridiculous, there is no reason to believe that life for business in emerging markets is not going to get a whole lot worse before it gets better.
Then again the global financial system is still largely frozen. Even if, and it is quite a big if, the Obama bailouts succeed it will take several years to rev global trade up to the levels seen before the crash.
In the meantime, public companies will report losses, banks will make further write downs and asset prices decline further. How can emerging markets deliver a sustained bull market under these conditions? Dr. Mobius ought to know better after so long in the business.
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Consider this from the FT. How can the Asian emerging markets go into a bull run with Japan in such a terrible state?
Japan suffered another record drop in exports last month while imports also fell much more than expected, highlighting the damaging impact of the global downturn on the world’s second largest economy.
Exports nearly halved in February, falling 49.4 per cent from a year earlier, as demand for Japanese goods plunged in key markets.
However, imports also fell much more than expected, dropping 43 per cent amid declining corporate earnings and rising unemployment.
As a result of the sharp fall in imports, Japan posted a trade surplus in February for the first time in five months.
Japan’s trade balance showed a small surplus of Y82.4bn ($843m), after suffering a record deficit of Y952.6bn in January.
There had been some hope that the Chinese government’s fiscal stimulus measures would boost demand for Japanese materials, but no such signs are visible from the trade figures, said Naoki Murakami, chief economist at Monex Securities in Tokyo.