Inflation and rate policy remain key issues for emerging markets throughout the BRIC group and elsewhere. But developments here may also translate into trading opportunities.
The prospect of a rate hike has been hanging over the market over the last few months and definitely getting more intense in recent weeks. Brazil has massively underperformed other emerging markets despite theoretically being the darling economy and market. But if the cycle of monetary tightening can be reduced, does this serve as a year-end catalyst to this lagging market?
After an early dip, the Bovespa rose nicely on this news today, completing the biggest move in a month over the last three days. But with the market still down 2% this year in local currency terms compared to a 9% gain in the EEM and numbers like 26% and 38% from Turkey and Chile, respectively, there is a lot of catching up here to do.
In China, according to the Ministry of Agriculture, food inflation seems to be coming down. This has been Beijing’s biggest area of concern and has already been priced into recent CPI numbers. The vegetable category, which recently raised alarms by surging 10%, is coming down significantly over the last month.
Like Brazil, the Chinese market has lagged others in the emerging world over the last week. Next week, watch trade imports and export numbers to gauge the strength of the domestic economy and see just how strong Western demand for Chinese goods has been.
And Russia was everybody’s darling this week and a market we have been bullish on for months. What is left to buy there? A lot, it turns out.
Moscow stocks are still cheap compared to their global peers, with an average P/E of 7.5 times next year’s earnings. And the oil and gas stocks in particular — the Rosnefts (very thinly traded in ADR) and Gazprom's (OGZPY.PK) (quote) of the world — have started to move.
This is the reason the Russian market is so cheap: These energy stocks suffered a lot, and now have the most upside to recapture.
Finally, was Wimm-Bill-Dann (WBD) (quote) a one-off deal or a sign of M&A fever ahead? U.S. companies have already doubled their M&A activity in emerging markets, but while consumer names are attracting significant interest, they are not cheap — and there are only a few strategic players who can make the kind of big move Pepsi (PEP) (quote) made this week.
Disclosure: No positions