Report: MidLincoln March GEM Strategy
Utilities, Precious Metals, Real Estate, Canada, France are among the worst
You will be able to download all slides in power point for this reportand all data is available excel
Our Stance for March: GEM stocks are doing okay so far this year. Slightly behind developed markets. MSCI EM index is up 3.6 while MXWO is up 3.6% YTD. In march the divergence in performance between GEM and World has worsened. IS problems and Ukraine are 2 acute problems in politics that negatively affect the valuation of Turkey and Russia in particular as well as overall GEM in general. While investors avoid taking European risk looks to the US for the investment destination. Our key GEM overweights remain Russia, India, Korea and China. While we favor less Turkey and are neutral on SA. We are watching Brazil closely as we think that value will open up in the country soon. Russia looks interesting as devaluation created some positives for Russia stocks especially in energy and materials sectors. China authorities are trying hard to ease the pressure on yuan as they cut banks reserve ratio in January and eased the repo rate in February. As a result yuan was slightly weaker in February against the USD. We are positive on yuan however, despite the weakness and therefore we are positive on Chinese importers and domestic producers. Brazil has further increased rates, but the reais is l weak down 5% in February. But it is not weak enough to produce substantial advantages for commodities producers. Inflation is at 7.7% and rates less positive we will be waiting for less positive rates and the trade out of Brazil bonds into equities before turning more positive on Brazil stocks. India is again strong this year. Its the second best performing market ytd. We are still positive on India, given the momentum and everybody’s attitude towards investing into Indian stocks but we are turning more cautious of the bubble. Indian valuations are only justified if there is a substantial earnings upgrade in the future when earnings come out from the shade. If reforms stall, India stock market is a bubble. Turkish stocks are weak ytd in fact its the worst out of our GEM universe of key GEM county weight.. Turkey is getting dragged into military standing with IS as it announced plans to help clear up the northern iraq territories from IS. Yet the rate cut in February coincided with higher inflation reading which can stimulate assets price including stocks. Yet lira losses against the USD could wipe out any gains for stocks in local currency. South Africa stocks are buoyed by overall supportive 2014 GDP performance and overall balanced structure of the SA stock market. e.g. financial and communication are over 50% of SA market cap. So SA stocks are less exposed to commodity price fluctuations. We are moderately positive of SA stocks favoring consumers stocks,healthcare as well as SA banks. Korean stocks are somewhat positive so far this year but the upside is moderately limited. In the upcoming months Korea can get an upper hand in Asian currency wars if it cuts the interest rate. This could stimulate Korean stocks. We like Korean Industrials stocks as well as health care.