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------Original Message------ From: Adi Hartadi TRIMegah To: ; Sent: Sep 15, 2008 15:10 Subject: Emerging-Market `Panic' May End as Profits Spur 20% Stock Gain > Emerging-Market `Panic' May End as Profits Spur 20% Stock Gain > 2008-09-14 23:01:20.0 GMT > > > By Michael Tsang and Eric Martin > Sept. 15 (Bloomberg) -- Emerging-market companies, earning > more for shareholders than ever before, are getting no respect > just as their stocks drop to levels that preceded rallies. > More than $500 billion in credit-market losses and falling > prices of oil, nickel and soybeans pushed the MSCI Emerging > Markets Index down more than a third since October, leaving it > 24.7 percent below its 200-day moving average. In the past two > decades, the difference grew that wide only in the aftermath of > Sept. 11, the 1998 Russian debt default and Mexico's 1994 peso > devaluation, data compiled by Bloomberg show. In every case, the > index gained 20 percent or more in the next three months. > This time, prospects for a rebound are even greater as > developing-nation economies grow twice as fast as a decade ago, > says Uri Landesman, head of global growth and international > equities at ING Groep NV's asset management unit in New York. > Return on equity, or a company's profit made with money invested > by shareholders, rose to 16.8 percent this quarter, the highest > for emerging markets since Bloomberg began tracking MSCI Inc. > data in 2003 and a level Morgan Stanley says may be a record. > ``You're more than getting paid for your risk,'' said > Landesman, who oversees $5 billion. ``When you have a panic like > this, the baby gets thrown out with the bathwater.'' > Equity prices in the MSCI index average 9.8 times forecast > earnings over the next 12 months, the cheapest in a decade versus > reported profits. Valuations have fallen even as developing > economies are projected to expand 6.7 percent next year, double > the average rate during the 1990s, with one-tenth the inflation, > according to the Washington-based International Monetary Fund. > > Equity Return > > While return on equity for industrialized-nation stocks fell > almost 10 percent from an all-time high in October as global > economic growth slowed, developing-nation companies increased > profitability, data compiled by Bloomberg show. > Return on equity at China Mobile Ltd., the world's largest > wireless carrier by users, climbed to 27.76 percent in the first > half, the most on record dating back to 2003. China Mobile said > last month that second-quarter profit jumped 51 percent, beating > analysts' estimates. > Even so, the Beijing-based company, which lost 45 percent of > its value this year in the biggest decline since 2001, is trading > at 10.1 times estimated 2009 profit. That's the lowest valuation > compared with reported earnings in more than five years. > CEZ AS, the Czech Republic's biggest utility, reported a > return on equity of 27.6 percent in the second quarter, the > highest since at least 2002, data compiled by Bloomberg show. > > No Respect > > The company, located in Prague, raised its full-year profit > forecast after saying last month second-quarter earnings rose 68 > percent on cost cuts and higher electricity prices. Still, CEZ > plummeted 21 percent this year and traded at a record low 9.7 > times next year's forecast earnings last week. > ``Emerging-market equities should get respect,'' said Brett > Hammond, New York-based chief investment strategist at TIAA-CREF, > which oversees $420 billion and is buying shares in developing > nations. ``The fundamentals are what's driving earnings. They're > still robust compared to anything in the developed world.'' > After emerging-market stocks surged more than fourfold in > the past five years, investors grew skeptical of growth prospects > as commodity prices fell by the most in almost three decades and > the biggest U.S. housing bust since the Great Depression caused > $514 billion in asset writedowns and credit losses for banks. > ``The air is coming out of those emerging-market stocks,'' > said Jeffrey Kleintop, chief market strategist at LPL Financial > in Boston, which oversees $273 billion. ``What we're seeing is a > really nasty bear market and it can stay oversold for as long as > it stayed overbought in the bull market run-up.'' > > Pulling Out > > Kleintop said LPL started trimming its emerging-market > holdings in the first quarter and sold out completely in July. > Investors have pulled almost $29 billion from emerging- > market equity funds this year, the most ever on a net basis, data > compiled by EPFR Global, a Cambridge, Massachusetts-based fund > research firm, and New York-based Merrill Lynch & Co. show. > The 14-week stretch of redemptions also matches the longest > streak since EPFR started tracking the data in 2000. > Traders in currency markets are also betting on further > declines as the economic slowdowns in the U.S., Europe and Japan > make investors less willing to take on risk. Volatility on > options for currencies from the Brazilian real to South Korean > won versus the dollar is rising at a faster pace than those to > buy or sell the euro and yen, according to JPMorgan Chase & Co. > The MSCI Emerging Markets Index plummeted 31 percent this > year, the biggest year-to-date drop in a decade. > > Commodities Slump > > Raw-materials producers, which make up about a third of the > index, accelerated the decline as 19 commodities such as crude > oil, metals and farm products averaged the biggest monthly loss > since 1980. The index fell 2.1 percent to 855.47 last week, and > slumped 24.7 percent below its average price in the past 200 > trading days. The gap, which tracks the depth and speed of a > sell-off and gauges investor pessimism, signaled similar > bearishness only three times in the MSCI gauge's 20-year history. > In the wake of the Asian financial crisis and Russia's > default on $40 billion of ruble-denominated debt, the index > plunged 37 percent below its 200-day moving average in September > 1998. During the so-called Tequila Crisis that began when Mexico > devalued its currency in December 1994, emerging markets hit > bottom after tumbling 22.7 percent below the average. > The benchmark index slid 24.3 percent below the 200-day mean > in September 2001 after terrorists crashed commercial jetliners > into New York's World Trade Center and the Pentagon. > > Worst Ever > > This year's plunge is one of the worst in history, with less > than a 0.3 percent chance of occurring at any given time, based > on volatility-adjusted probabilities compiled by Bloomberg. > History shows that each of the three prior troughs heralded > the start of a bull market for emerging-market equities. > Developing-nation stocks climbed an average 24 percent in the > next three months and 36 percent over a 12-month span. > The steepest drop preceded the biggest rally, with the MSCI > index jumping 27 percent between September and December 1998. > ``It's been an incredibly quick and deep sell-off, and very > little has been spared,'' said Greg Lesko, who oversees $900 > million at Deltec Asset Management Corp., a New York-based hedge > fund. ``We're seeing real value out there, and when we see real > value we like to be buying it.'' > > For Related News: > Top stories on stocks: TOP STK <GO> > Feature stories on stocks: TNI STK GREET <GO> > > --With reporting by Jeff Kearns and Liz Capo McCormick in New > York, and Carlos Caminada and Paulo Winterstein in Sao Paulo. > Editors: Chris Nagi, Laura Zelenko > > To contact the reporters on this story: > Michael Tsang in New York at +1-212-617-3277 or > [EMAIL PROTECTED]; > Eric Martin in New York at +1-212-617-5383 or > [EMAIL PROTECTED] > > To contact the editor responsible for this story: > Chris Nagi at +1-212-617-2179 or [EMAIL PROTECTED] > > ******************* DISCLAIMER ******************* This e-mail message and any attachments thereto is intended only for the use of the individual or entity to whom it is addressed and others authorized to receive it and may contain information that is confidential, priviledged and/or exempt from disclosure under applicable law. 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