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Will the monetary cycle derail the
emerging equities outperformance?
May 24th, 2010
This material is solely for the attention of "professional”
investors (see more details and definitions at the back).
Abundant flow of funds on the EM asset class
Will the monetary cycle derail GEM growth ? - 23/05/2017page 2
Stellar relative performance
Relative performance of MSCI Emerging Markets vs. MSCI World
400
350
300
250
200
150
Source: Datastream, Amundi - 01/01/1988 – 17/05/2010 - USD
Past performance is not a guarantee or a reliable indicator for current or future performance and returns
01/01/2010
01/01/2009
01/01/2008
01/01/2007
01/01/2006
01/01/2005
01/01/2004
01/01/2003
01/01/2002
01/01/2001
01/01/2000
01/01/1999
01/01/1998
01/01/1997
01/01/1996
01/01/1995
01/01/1994
01/01/1993
01/01/1992
01/01/1991
01/01/1990
01/01/1989
01/01/1988
100
Will the monetary cycle derail GEM growth ? - 23/05/2017page 3
avg EM
17/05/2010
17/11/2009
17/05/2009
17/11/2008
17/05/2008
17/11/2007
17/05/2007
17/11/2006
17/05/2006
17/11/2005
17/05/2005
17/11/2004
17/05/2004
17/11/2003
17/05/2003
17/11/2002
17/05/2002
17/11/2001
17/05/2001
17/11/2000
17/05/2000
17/11/1999
17/05/1999
17/11/1998
17/05/1998
17/11/1997
17/05/1997
17/11/1996
17/05/1996
17/11/1995
17/05/1995
Synchronized monetary policy this time around
Central bank rates (%)
25
20
15
10
5
0
avg DEV
EM:: Taiwan, Russia, Korea, Indonesia, India, China, Brazil
DEV:US, EEC, Japan
Will the monetary cycle derail GEM growth ? - 23/05/2017page 4
Monetary policy: tightening in EM vs on hold in DM
Will the monetary cycle derail GEM growth ? - 23/05/2017page 5
Higher GDP growth differential to accelerate
Growth differential between Emerging and developed countries
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
1997
1998
1999
2000
2001
2002
2003
2004
GDP (real, %YOY)
Source: Datastream, MSCI, EU, Amundi
2005
2006
Average
2007
2008
2009
2010
2011
So urce : EIU, M SCI, A mundi
Will the monetary cycle derail GEM growth ? - 23/05/2017page 6
Change in real GDP forecasts
Source: JP Morgan, Amundi
Will the monetary cycle derail GEM growth ? - 23/05/2017page 7
Superior sovereign risk
Emerging economies enjoy strong macroeconomic fundamentals
compared with developed countries:
Emerging Countries
Key economic data
Developed Countries
Year
% of GDP
Gross Government Debt
2009
42%
94%
Budget Balance
2009
2010e
-4.4%
-4.0%
-8.2%
-8.5%
Gross External Debt
2009
26%
135%
Current Account Balance
2009
2010e
2.9%
1.7%
-1.6%
-1.9%
Source: MSCI, EIU, JEDH, Fitch, Amundi
Will the monetary cycle derail GEM growth ? - 23/05/2017page 8
A twin deficit: a ten years story
Current account (% GDP) + Budget balance (% GDP)
25
2009
20
15
worsening
10
Malaysia
Taiwan
5
China
Germany
Israel
Mexico
Poland
Japan
Turkey
Italy
South Africa
India
0
Brazil
-5
-10
USA
-15
1999
Korea
Russia
UK
Portugal
-20
Greece
-25
-15
Source: EIU, Amundi
-10
-5
0
5
10
15
Will the monetary cycle derail GEM growth ? - 23/05/2017page 9
Emerging markets’ relatively low leverage
350
Total of Private and Public Debt (% GDP) - 2009
300
250
200
150
100
50
General government debt
Private credit
Peru
Indonesia
Russia
Mexico
Colombia
Argentina
Turkey
Philippines
Chile
Czech Republic
Poland
Egypt
South Africa
Brazil
Morocco
India
Thailand
Hungary
Korea
China
Taiwan
Germany
France
Greece
Portugal
Spain
United States
United Kingdom
Japan
0
so urce : Fitch
Will the monetary cycle derail GEM growth ? - 23/05/2017page 10
Source: Datastream, Amundi
Données au 5 mai 2010
RUSSIA
CHINA
BRAZIL
GREECE
PORTUGAL
04/05/10
04/04/10
04/03/10
04/02/10
04/01/10
04/12/09
04/11/09
04/10/09
04/09/09
04/08/09
04/07/09
04/06/09
04/05/09
04/04/09
04/03/09
04/02/09
04/01/09
04/12/08
04/11/08
04/10/08
04/09/08
04/08/08
04/07/08
04/06/08
04/05/08
04/04/08
04/03/08
04/02/08
04/01/08
04/12/07
04/11/07
04/10/07
04/09/07
04/08/07
04/07/07
04/06/07
04/05/07
1200
A change in risk perception
1000
800
CDS 10 y
600
CDS 10y
500
DV
400
300
200
100
EM
0
SPAIN
Will the monetary cycle derail GEM growth ? - 23/05/2017page 11
MSCI Emerging Markets
MSCI World
Jan-10
Jan-09
Jul-09
Jan-08
Jul-08
Jan-07
Jul-07
Jan-06
Jul-06
Jan-05
Jul-05
Jan-04
Jul-04
Jan-03
Jul-03
Jan-02
Jul-02
Jul-01
Jul-00
Jan-01
Jul-99
Jan-00
Jul-98
Jan-99
Jul-97
Jan-98
Jul-96
Jan-97
Jul-95
Jan-96
Jul-94
Jan-95
Jul-93
Jan-94
Jul-92
Jan-93
Jan-92
Jan-91
Jul-91
Jan-90
Jul-90
On the road to premium valuation
PE next 12 months
25
23
21
19
17
15
13
11
9
7
5
Source : Ibes
Will the monetary cycle derail GEM growth ? - 23/05/2017page 12
EPS growth forecasts (IBES consensus)
Will the monetary cycle derail GEM growth ? - 23/05/2017page 13
EM currencies: appreciation to further
Global Real Effective Emerging Markets Exchange Rates (*)
110
REER vs Trade weighted $
105
100
95
90
Asian crisis
85
80
75
Mar 10
Sep 09
Mar 09
Sep 08
Mar 08
Sep 07
Mar 07
Sep 06
Mar 06
Sep 05
Mar 05
Sep 04
Mar 04
Sep 03
Mar 03
Sep 02
Mar 02
Sep 01
Mar 01
Sep 00
Mar 00
Sep 99
Mar 99
Sep 98
Mar 98
Sep 97
Mar 97
Sep 96
Mar 96
Sep 95
Mar 95
Sep 94
Mar 94
Sep 93
70
'(*) weighted average REER of Korea, Brazil, Mexico, China, South Africa, India, Malaysia, Israel and Russia.
Source : Datastream, Amundi
Will the monetary cycle derail GEM growth ? - 23/05/2017page 14
Is EM inflation really a threat ?
Differential betw een Em erging and Developed Countries
5
4
3
2
1
CPI (%yoy - average)
Average
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
so urce : EIU, M SCI, A mundi
Will the monetary cycle derail GEM growth ? - 23/05/2017page 15
Monitoring inflation
Will the monetary cycle derail GEM growth ? - 23/05/2017page 16
Conclusion
No decoupling in a more and more globalized world
 Emerging Countries will suffer if and when developed economies collapse
– Global imbalances still present
– Impact of “Greek turmoil” (and its consequences) on European growth
Nevertheless we remain strongly convinced on GEM equities on a relative basis
 Continuation of global economic recovery should force many investors defensively
positioned to reallocate assets
– Strong macroeconomic conditions and higher growth compared with developed countries:
– Relative risk perception of Emerging markets should continue to improve
– Current Emerging market discount not justified (but US equity market not cheap)
Will the monetary cycle derail GEM growth ? - 23/05/2017page 17
Disclaimer
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Will the monetary cycle derail GEM growth ? - 23/05/2017page 18
Disclaimer
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Will the monetary cycle derail GEM growth ? - 23/05/2017page 19