May 25, 2024

Change in global portfolio preferences…



Since the beginning of 2013, there has been a shift from developed country bonds to private sector bonds and stocks in the portfolio preferences of global investors. Long-term borrowing costs and stock markets of most G7 countries, especially the USA, Germany and the UK, are rising simultaneously.

This trend, which shows that the expectation that the economy will recover in parallel with the measures taken, has been bought and the risk appetite has increased, caused the stock markets of developing countries to lag behind the developed markets in the first three months of the year.

Looking at the returns since the beginning of the year as of mid-March, Japan (+11.5%), USA (+9.5%) and Europe (+5.1%) performances stood out, while China (-3.7%) and Korea (- Significant losses are seen in emerging markets such as 5.0%, Malaysia (-4.7%), Poland (-5.1%), and the Republic of South Africa (-8.6%).

When we look at the economic data, there is no fundamental justification for the change in global portfolios against emerging markets. There is no deterioration in growth data to the detriment of developing countries. There is no surprising recovery in growth in developed economies other than the USA.

On the valuation front, the picture is not much different. Price-earnings ratios in emerging markets average around 11x. Mexico forms the two ends with 16x and Russia 6x. In the stock markets of developed economies, the price-earnings ratios are around 12x. Wall Street (13x) and Japan (24x), which have been the top earners since the beginning of the year, have higher price-earnings ratios.

Turkey has not yet been affected by the sales wave in emerging markets. MSCI Turkey has become one of the best performing markets in emerging markets with a return of 4.8% since the beginning of the year. Despite the increase in growth in 2013, the expectation that progress will be made in terms of inflation and current account balance makes Turkey differentiate.

Let’s leave the past and look to the future. Will the steepening in yield curves continue? Will the stock markets of developed countries continue to rise in an environment where long-term interest rates are rising? What would be the reaction of emerging stock markets in an environment where global interest rates are rising? Will ISE continue to separate from the world?

Answering these questions is not easy. The margin of error will inevitably be high. Our estimation is that interest rates will rise to normal levels as growth normalizes in developed economies.

In this context, in the case of the USA, we expect growth to increase from 2% to around 3% in the period of 2014-2015, and long-term interest rates to increase from 2% to around 3-4%. In Europe and Japan, this process may take much longer – until 2017-2018.

We believe that the emerging markets in Asia, Africa and South America, which are more sensitive to global growth than interest rates, will perform well in this process.

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