Emerging market stocks gather pace

Written by Markets Bureau | Agencies | Mumbai | Updated: May 3 2009, 05:16am hrs
When stock markets reopen on Monday after an extended weekend, the emerging markets indices are expected to attract strong interest. Returns from the Indian equity markets are now clearly the second best in the BRIC group that includes Brazil, Russia and China for April.

An analysis of the benchmark indices indicates that the 30-share Sensex gained 15.16%, rising 1,501 points through the month. The Russian market was ahead of India, gaining 16.44% over March.

A Bloomberg study shows the MSCI Emerging Markets Index jumped 16 % this year compared with a 3 % retreat in the MSCI World Index. Indices in China, Russian and Brazil have gained at least 25% this year, making them among the 10 best performers in the world, while the Sensex has gained 18%.

This looks impressive compared with the returns in the developed markets, which too did significantly better in April. Equity markets in the US, Japan and the UK gave investors returns of 9 to 12%.

The rise of Sensex was aided by a strong inflow from overseas funds. Net FII purchases in Indian equities in April 2009 came to Rs 6,508.20 crore. The inflow in calendar 2009 is now at Rs 356.50 crore. Investors continued committing fresh money to emerging markets equity funds during the third week of April, extending their collective inflow streak to seven straight weeks, as commodity prices rallied and Chinas demand for imports was reflected in the trade figures of Korea, Taiwan and other emerging markets, says an EPFR Global report.

A report by BNP Paribas Asset Management said it has turned positive on Russia in March and now holds more shares in the four markets than benchmark indices would suggest.

Earlier this week, a UBS report said its lead economic indicator in India has climbed for three consecutive months, pointing to a strong recovery in industrial activity by June 2009. According to UBS analysts, their base-case scenario is for the Indian economy and corporate earnings to bottom out by the second half of 2009-10 and a recovery to set in by the next financial year. In another report, the Swedish bank said its target for the Sensex was around 13,500 levels this year.

Reflecting the level of optimism, the traded value on the futures & options segment of the National Stock Exchange jumped 41.72% in April. On April 29, the last trading day of the month, deals worth around Rs 80,000 crore were carried out. And in the cash segment, trade values jumped 34.29% in April.

Prateek Agarwal, head of equity at Bharti AXA Investment Managers, reckons that the chances of the market testing previous lows are less. He says, Going forward, we expect the domestic economic news flow to steadily improve. We believe the markets reflect the uptick in economy slightly in advance.

Besides, the emerging markets fared better in April, with Indonesian stocks giving over 30% returns. of Other markets which gained around 20% include Korea, Hungary, Turkey and Poland.