Report: ML Emerging Markets Monthly Strategy Jan 2015

Utilities, Precious Metals, Real Estate, Canada, France are among the worst

Source: ML

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Developed world is in the disglobalisation mode. Iraq and Afganistan wars, Libia and Syria chaos, IS, war in Ukraine, sanctions on Russia and Iran and the most recent incident - Charlie are all the bricks of the disglobalisation. Globalisation that buoyed countries like China, Brazil and Russia, and is about to help India and Africa found significant headwinds of disglobalisation that is bad for the emerging markets. In the developed world disglobalisation is somewhat favorable to the US, as globalisation somewhat sinks the importance of US global hegemony. Hence the trade out of the emerging into US markets. To counter disglobalisation the next big globalisation event is the opening up of domestic China markets and floating of the Yuan. China authorities are resistant however as they are aware that floating Yuan will not necessary be beneficial to China economy. They are perhaps right, but it will certainly benefit global trade. On the country by country basis Russia is a problem child of the financial markets currently, living in the state of severe cognitive dissonance. On one hand it has been as orthodox as Soviet Union in relation to its political problems such as Ukraine, internal politics, etc..But on the other hand it tries to be as liberal as gets in terms of its financial markets, despite obvious challenges of lower oil prices, limited liquidity and sanctions. We applaud brave men in Russian government bold enough to keep liberal bias. xxxx xxxx xxxxxxxx While Saudi Arabia will take its space in the emerging market index in May MSCI rebalancing. Saudis will be the biggest beneficiaries of the trade out of Russia into Saudi Arabia. xxxxx China markets are expected to be somewhat stronger as China markets are continuing its access reformxxx xxxx xxxx xxxx Gold price move is yet another sign of dollar weakness and possible yuan strength. xxxxxxxxxxxx xxxx Brazil is interesting for investors as a country which has handled well a decade of market reforms. Brazil has good potential in social capital development and fairly low base. xxxxxxxxxxxx xxxx xxxx xxxx South Africa as a substantial oil importer is also a beneficiary of lower oil prices, although significant rand strength on the back of the better current account and lower oil prices could be harmful for South Africa exporters as well as domestic producers. So on the net basis South Africa investment case is only mildly positive. xxxx xxxx xxxx xxxx Turkey is facing slowing exports, rising inflation and slightly better imports given the drop in oil prices. Its real rates are edging towards negative territory as Turkish Central bank is reluctant to rise rates while xxxx xxxx xxxx xxxx With its recent gas deal with Russia Turkey has been offered exciting opportunity to cement its role as a transit geography. xxxx xxxx xxxx xxxx xxxx India still looks very toppish on valuation. Despite that investors are keen to put more money into Indian assets anticipating another rate cut later in February. Decision to send more money to India is aided with drive to increase transparency by Indian corporates which might sweeten the valuation. xxxx xxxx xxxx xxxx South Korea is offering fairly upbeat growth in 2015 of over 3.5%. South Korean stocks which managed poorly in 2014 (MSCI Korea -12%) can repeat overall lackluster result. Heavy stock picking is required on the Korean market. The index was driven down mainly by Samsung Electronics who keeps posting deteriorating results as it slips into lower margin more competitive territory, yielding Apple xxxx xxxx xxxx xxxx GEM View Stance Sectors Stance Russia Stance Russia Valuations Russia Top Stock Picks Russia Top Bond Picks Russia Last Month Performance Review Brazil Stance Brazil Valuations Brazil Top Stock Picks Brazil Top Bond Picks Brazil Last Month Performance Review South Africa Stance South Africa Valuations South Africa Top Stock Picks South Africa Top Bond Picks South Africa Last Month Performance Review Turkey Stance Turkey Valuations Turkey Top Stock Picks Turkey Top Bond Picks Turkey Last Month Performance Review Korea Stance Korea Valuations Korea Top Stock Picks Korea Top Bond Picks Korea Last Month Performance Review China Stance China Valuations China Top Stock Picks China Top Bond Picks China Last Month Performance Review India Stance India Valuations India Top Stock Picks India Top Bond Picks India Last Month Performance Review

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