Emerging Market Index Back In the Black Thanks to Rising Commodities

By Mike Caggeso
Associate Editor

A six-day stock rally in emerging markets has wiped away the 2008 year-to-date loss of the MSCI Emerging Markets Index.

Rising commodity prices – particularly oil and metals – helped the index recover its 16% loss leading into the beginning of last week. 

As the U.S. economy continues to send mix signals, oil closed last week at a record high of $127.43 a barrel and gold futures rallied to $899.90 an ounce Friday, the highest level in nearly a month.

The MSCI Emerging Markets Index closed Monday at 1240.31. Some of its top 50 holdings include Lukoil (LUKOY.PK), Petroleo Brasileiro SA (PBR), PetroChina Company Ltd. (PTR), Vale (RIO) and Cemex SAB de CV (CX).

“As long as we’re seeing strong commodity prices, the implication is that the emerging markets are still growing,” Walter Hellwig, who helps oversee $30 billion at Morgan Asset Management, told Bloomberg. “The supply constraints in commodities are here for at least several more years, so these stocks should continue to do well.”

Also lending a hand was the U.S. Federal Reserve’s bailout of financials such as The Bear Stearns Cos. Inc. (BSC) and the Bank of England’s $100 billion rescue plan, which have boosted investor sentiment around the world.

“Two months ago, you had the capital markets fearing the world was coming to an end,” Michael Strauss, chief economist and market strategist at Commonfund, which oversees about $43 billion, told Bloomberg. “By April, you could clearly argue that the Fed not only gets it, but they’re doing creative things to address it. We’re not getting that type of nasty recession that the markets were priced to.”

Still, some emerging-market skeptics remain, including, famed investor and Berkshire Hathaway Inc. (BRK.A),(BRK.B) Chairman Warren Buffett. On Monday, Buffett flew to Frankfurt, Germany to look for acquisition targets in Europe, which is – in his opinion –a safer market to buy.

“You want to fish in a pond where there’s fish. Europe is a much better pond,” Buffett told India’s Economic Times about his decision to visit Europe instead of emerging-market countries.