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Hunt for Returns Reaches Pakistan
Since March, more than $67 billion has poured into a group of 30 emerging markets
The Karachi Stock Exchange PHOTO: ASIM HAFEEZ/BLOOMBERG NEWS
By
MIA LAMAR And
CAROLYN CUI
Ross Teverson, head of emerging-market strategy at $49 billion money manager Jupiter Asset Management, has a new star pick: Pakistan.
The country wasn’t even considered an emerging market when he decided to invest. Until earlier this summer, it was a rung lower—a “frontier” market, where stocks are notoriously hard to trade and the political climate is tumultuous. And yet, the benchmark KSE-100 stock index is up 20% in dollar terms this year, Exhibit A in how far global investors are willing to go for returns these days.
Sluggish growth in developed economies has prompted central banks to push interest rates down to zero and beyond, wiping out yields on government debt and sending investors into all sorts of fringe or previously unloved markets such as Pakistan’s.
By estimates, since March more than $67 billion has poured into a group of 30 emerging markets tracked by the Institute of International Finance. That number doesn’t include money heading to markets such as China and Russia, where information on foreign buying is limited.
“Investors have had to go further down the risk spectrum,” said Supriya Menon, senior multiasset strategist at $153 billion money manager Pictet Asset Management.
Alex Muromcew, who manages the TIAA Emerging Markets Equity Fund, has been increasing his fund’s exposure to Peru, a fringe investment even among emerging-market specialists. The country has attracted attention with a new president who is seen as market friendly. Stocks there are up 56% this year in dollar terms.
Bond prices in Ecuador have rallied 27% this year, despite an energy-price slump that has cut revenue for the oil exporter. Hungary’s stock market is up 16%, beating most European bourses, as investors bet that falling inflation will allow the central bank to ease monetary policy.
Interest is even high in junk-rated Sri Lanka, which reached a deal with the International Monetary Fund in April to stave off a financial crisis. Foreigners have boosted their holdings of Sri Lanka’s local-currency government debt for six straight weeks, according to HSBC Holdings PLC.
Over a single week in July, foreign investors poured more than $5.5 billion into Indonesia, India and five other major emerging stock and bond markets tracked by the Institute of International Finance, the biggest one-week influx of cash in 15 months. Emerging-market debt funds drew a record $14 billion in the four weeks ended July 27, according to fund tracker EPFR Global.
There are limits to how much money these markets can absorb, and analysts warn that investors have probably underestimated the risks. Many emerging economies still rely heavily on commodity exports, making them vulnerable to continued weakness in global growth. Some investors might find it hard to find the exits if markets take a tumultuous turn.
“They might find liquidity to be an issue in emerging markets when there is a need to sell,” said Sean Ryan, senior analyst at MPI, a global provider of quantitative research and risk analytics.
Emerging-market stocks and local-currency bonds sustained losses for three consecutive years between 2013 and 2015, as investors pulled out billions of dollars. The MSCI EM index fell 25% over that period, compared with a 52.6% gain for the S&P 500 index. TheJ.P. Morgan Global Bond Index Emerging Markets Diversified lost 27%, while U.S. Treasury bonds rose 3.4%.
Peru’s $109 billion stock market is among the most volatile in all emerging markets. During the past three years, the market lost nearly half of its value, according to MSCIInc.
Bond investors also have to wrestle with deteriorating credit quality. There have been 19 defaults in emerging countries this year, up from 15 at the same time last year, according to S&P Global Ratings. Nearly one-third of all emerging-market issuers are at the risk of being downgraded.
But an easing of concerns about China’s economic slowdown, along with a rebound for commodity prices from their lows early this year, has helped encourage the return to riskier markets. Analysts and investors widely say they expect inflows to continue.
“Emerging markets have been broadly out of favor with global investors for the better part of four years,” said Mr. Teverson, whose investment in Pakistan helped his fund gain 17% this year through June. “When you have seen an asset class out of favor for so long and you see valuations so low, that inflow can be sustained for a long period.”
Asia, long snubbed by global investors, has been a big winner. The region has accounted for more than half of the emerging-market influx since March, according to the Institute of International Finance.
Foreign ownership of government bonds in Indonesia—where benchmark yields are hovering around 7%—has reached almost 40%, a 15-month peak. That comes although S&P Global Ratings stuck by its below-investment-grade—or junk—rating on the country in June, citing a population that is still relatively poor and a heavily indebted corporate sector.
In late July, Chinese property developer Greenland Hong Kong Holdings issued $450 million in three-year bonds yielding 4.125%, a half-percentage point below where the junk-rated company initially marketed the bonds and just 3.3 percentage points more than three-year U.S. Treasury notes.
Pacific Investment Management Co., the world’s biggest bond-fund manager, has done well this year investing in “out of consensus” countries such as Sri Lanka, according toLuke Spajic, who oversees the firm’s emerging-market investments in Asia. He warned, however, that risks such as a sharp slide in oil prices could send investors fleeing again.
“Everything could change on a dime,” Mr. Spajic said.
http://www.wsj.com/articles/hunt-for-returns-reaches-pakistan-1470032247
Since March, more than $67 billion has poured into a group of 30 emerging markets
The Karachi Stock Exchange PHOTO: ASIM HAFEEZ/BLOOMBERG NEWS
By
MIA LAMAR And
CAROLYN CUI
Ross Teverson, head of emerging-market strategy at $49 billion money manager Jupiter Asset Management, has a new star pick: Pakistan.
The country wasn’t even considered an emerging market when he decided to invest. Until earlier this summer, it was a rung lower—a “frontier” market, where stocks are notoriously hard to trade and the political climate is tumultuous. And yet, the benchmark KSE-100 stock index is up 20% in dollar terms this year, Exhibit A in how far global investors are willing to go for returns these days.
Sluggish growth in developed economies has prompted central banks to push interest rates down to zero and beyond, wiping out yields on government debt and sending investors into all sorts of fringe or previously unloved markets such as Pakistan’s.
By estimates, since March more than $67 billion has poured into a group of 30 emerging markets tracked by the Institute of International Finance. That number doesn’t include money heading to markets such as China and Russia, where information on foreign buying is limited.
“Investors have had to go further down the risk spectrum,” said Supriya Menon, senior multiasset strategist at $153 billion money manager Pictet Asset Management.
Alex Muromcew, who manages the TIAA Emerging Markets Equity Fund, has been increasing his fund’s exposure to Peru, a fringe investment even among emerging-market specialists. The country has attracted attention with a new president who is seen as market friendly. Stocks there are up 56% this year in dollar terms.
Bond prices in Ecuador have rallied 27% this year, despite an energy-price slump that has cut revenue for the oil exporter. Hungary’s stock market is up 16%, beating most European bourses, as investors bet that falling inflation will allow the central bank to ease monetary policy.
Interest is even high in junk-rated Sri Lanka, which reached a deal with the International Monetary Fund in April to stave off a financial crisis. Foreigners have boosted their holdings of Sri Lanka’s local-currency government debt for six straight weeks, according to HSBC Holdings PLC.
Over a single week in July, foreign investors poured more than $5.5 billion into Indonesia, India and five other major emerging stock and bond markets tracked by the Institute of International Finance, the biggest one-week influx of cash in 15 months. Emerging-market debt funds drew a record $14 billion in the four weeks ended July 27, according to fund tracker EPFR Global.
There are limits to how much money these markets can absorb, and analysts warn that investors have probably underestimated the risks. Many emerging economies still rely heavily on commodity exports, making them vulnerable to continued weakness in global growth. Some investors might find it hard to find the exits if markets take a tumultuous turn.
“They might find liquidity to be an issue in emerging markets when there is a need to sell,” said Sean Ryan, senior analyst at MPI, a global provider of quantitative research and risk analytics.
Emerging-market stocks and local-currency bonds sustained losses for three consecutive years between 2013 and 2015, as investors pulled out billions of dollars. The MSCI EM index fell 25% over that period, compared with a 52.6% gain for the S&P 500 index. TheJ.P. Morgan Global Bond Index Emerging Markets Diversified lost 27%, while U.S. Treasury bonds rose 3.4%.
Peru’s $109 billion stock market is among the most volatile in all emerging markets. During the past three years, the market lost nearly half of its value, according to MSCIInc.
Bond investors also have to wrestle with deteriorating credit quality. There have been 19 defaults in emerging countries this year, up from 15 at the same time last year, according to S&P Global Ratings. Nearly one-third of all emerging-market issuers are at the risk of being downgraded.
But an easing of concerns about China’s economic slowdown, along with a rebound for commodity prices from their lows early this year, has helped encourage the return to riskier markets. Analysts and investors widely say they expect inflows to continue.
“Emerging markets have been broadly out of favor with global investors for the better part of four years,” said Mr. Teverson, whose investment in Pakistan helped his fund gain 17% this year through June. “When you have seen an asset class out of favor for so long and you see valuations so low, that inflow can be sustained for a long period.”
Asia, long snubbed by global investors, has been a big winner. The region has accounted for more than half of the emerging-market influx since March, according to the Institute of International Finance.
Foreign ownership of government bonds in Indonesia—where benchmark yields are hovering around 7%—has reached almost 40%, a 15-month peak. That comes although S&P Global Ratings stuck by its below-investment-grade—or junk—rating on the country in June, citing a population that is still relatively poor and a heavily indebted corporate sector.
In late July, Chinese property developer Greenland Hong Kong Holdings issued $450 million in three-year bonds yielding 4.125%, a half-percentage point below where the junk-rated company initially marketed the bonds and just 3.3 percentage points more than three-year U.S. Treasury notes.
Pacific Investment Management Co., the world’s biggest bond-fund manager, has done well this year investing in “out of consensus” countries such as Sri Lanka, according toLuke Spajic, who oversees the firm’s emerging-market investments in Asia. He warned, however, that risks such as a sharp slide in oil prices could send investors fleeing again.
“Everything could change on a dime,” Mr. Spajic said.
http://www.wsj.com/articles/hunt-for-returns-reaches-pakistan-1470032247
. I write with integrity and 100% credibility or I keep my mouth shut. In the coming years, now watch how billions worth of manufacturing and technology jobs will be moving to Pakistan. Along with that, expect Samsung, LG and a few other power houses to start building their products inside Pakistan. Also watch the Car manufacturing, Audi, Ford, Renault and a few others are wanting to setup manufacturing inside Pakistan. They might start from dealership network first, but they will be doing JV's to build and sell cars there.
