Post on 09-May-2022
Could emerging market equities regain momentum?
December 2016
Global Emerging Market Equity
This document is intended for Professional Clients only and
should not be distributed to or relied upon by Retail Clients.
The information contained in this document is not intended
as investment advice or recommendation. Non contractual
document.
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Contents
Introduction 3
Economic Development 4
Profit Outlook 7
Environmental, Social, Governance (ESG) 9
Investment Opportunity 12
Conclusion 14
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Introduction
In the mid-to-late 2000s, investors were
captivated by the favourable demographics and
secular development of emerging market
economies and the potential for capital
appreciation in these markets. Between
September 2001 and October 2007, emerging
market equities appreciated 515% in USD
terms, or 35% annualised, as indicated by the
MSCI Daily TR Emerging Markets Net USD
index (Figure 1).
However, the path of emerging market equity
returns has been range-bound over the last five
years, and far from exciting for long-term
investors. In 2011, emerging markets even
began to underperform developed markets on a
five-year annualised return basis (Figure 2).
As emerging market equities rebounded from
lows in February this year, investors gained
new enthusiasm and net inflows increased as
emerging market exports began to accelerate
and individual country industrial production
looked to improve.
However, the recent US Presidential election
has brought additional headwinds for the asset
class, as proposed policies may harm the
emerging market export engine, through on-
shoring manufacturing, imposition of tariffs,
limitation of remittances or repatriation of
foreign profits. It remains to be seen the extent
to which these and other proposals are
implemented, and this could generate market
volatility as debate unfolds. At the time of
writing, specific asset classes, markets, sub-
sectors and currencies have moved on
anticipation of proposed changes. So an
important question remains: could emerging
market equities regain momentum?
Looking at economic development trends and
the outlook for company profits, we believe
emerging markets continue to offer investment
opportunities, and investors today are being
paid to take risk in emerging market equities.
We believe asset allocators and active
managers can be proactive in looking for
attractive entry points and take advantage of
perceived mispricing to capture the long-term
investment potential of emerging markets.
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Figure 2
Emerging markets versus developed
markets
(Five-year annualised return difference, USD, %)
MSCI Daily TR Emerging Markets net versus MSCI Daily TR World net
Source: HSBC Global Asset Management, Bloomberg as at 30
September 2016. For illustrative purposes.
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Figure 1
Emerging market equity performance
(MSCI Daily TR Emerging Markets Net USD)
Source: HSBC Global Asset Management, Bloomberg as at 30
September 2016. For illustrative purposes.
Fundamentally, emerging market
equity continue to be attractive and
the long-term investment theme
remains intact.
The performance figures displayed in the document relate to the past
and past performance should not be seen as an indication of future
returns.
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Economic development
Despite the recent lacklustre performance in
emerging market equities, economic
development continues, providing a solid
foundation for profit growth. As a long-term
investment theme, the case for emerging
markets remains intact.
Demographics
In emerging markets, the overall population and
the share of the working-age population
(Figure 3) both continue to grow.
Urbanisation
Urbanisation has also increased in a majority of
emerging market countries. This is relevant
because urbanisation is consistent with a lift in
GDP per capita (Figure 4): it creates demand
for infrastructure investment while supporting
an expanding workforce with a higher
consumption potential.
Industrialisation
Industrialisation can be illustrated by growth in
electricity generation. In fact, electricity
generation is often considered a reference for
growth, like Gross Domestic Product. Across
emerging markets, net electricity generation
grew from 5.6 trillion kilowatt-hours (kWh) in
2003 to 10.2 trillion kWh in 2012, an increase of
80%, or 6.9% annualised (Figure 5).
50%
55%
60%
65%
70%
1981
1985
1989
1993
1997
2001
2005
2009
2013
Emerging Markets Developed Markets
Figure 3
Working age population
(Percentage of total population, %)
Source: HSBC Global Asset Management, International Monetary
Fund, World Economic Outlook Database, April 2016. For
illustrative purposes.
0
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4 000
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1990
1994
1998
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2006
2010
Emerging Markets Developed Markets
Frontier Markets
Figure 5
Net electricity generation
(Billion kilowatt-hours)
Source: HSBC Global Asset Management, U.S. Energy Information
Administration, September 2016. For illustrative purposes.
Figure 4
Urbanisation versus GDP per capita
Source: HSBC Global Asset Management, World Bank as at 30 September
2016. For illustrative purposes.
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GD
P p
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US
D
Urban population as share of total, %
Brazil ChileChina ColombiaCzech Republic Egypt, Arab Rep.Greece HungaryIndia IndonesiaKorea, Rep. MalaysiaMexico PeruPhilippines PolandQatar Russian FederationSouth Africa ThailandTurkey United Arab Emirates
Four key trends support the emerging markets story:
• Favourable demographics
• Increasing urbanisation
• Growing Industrialisation
• Developing institutions
The performance figures displayed in the document relate to the past
and past performance should not be seen as an indication of future
returns.
5 Non contractual document
Institutions
The development of institutions has led the
“Ease of Doing Business” ranking of many
emerging countries to improve, which can
facilitate business development (Figure 6).
As an example, patent applications in emerging
markets has grown by 21% annually between
2005-2014 (Figure 7). Not only does this reflect
positive business dynamics, but patents can
help companies move up the value chain in the
production of goods and services.
This has supported growth in emerging market
company Value-Added, which highlights the
contribution of emerging markets to the global
economy as measured by Gross National
Product (GNP). This growth has continued
despite a relatively flat equity market (Figure 8).
At the same time, local capital markets have
grown. The proportion of external debt has
declined, with the duration mix more towards
medium-term and long-term funding, and the
proportion is well below that of developed
market countries. This means emerging
markets are becoming less sensitive to foreign
exchange movements when it comes to
financing growth (Figure 9).
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Figure 6
Improvement in “Ease of Doing Business”
(Positive change in country rank, 2010-2016)
Figure 7:
Patent applications
(Thousands)
Source: HSBC Global Asset Management, World Bank Group,
Doing Business 2016. For illustrative purposes.Source: HSBC Global Asset Management, DataStream, 30
September 2016. For illustrative purposes.
Figure 8:
Emerging market Value-Added
(Billions)
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Value-Added
MSCI Daily TR Emerging Markets Net USD (RHS)
Source: HSBC Global Asset Management, Euromoney,
Bloomberg as at 30 June 2016. For illustrative purposes.
Figure 9:
External debt as a % of GDP
Source: HSBC Global Asset Management, International Monetary
Fund, World Economic Outlook Database, October 2016. For
illustrative purposes.
20%
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80%
100%
120%
1995
1998
2001
2004
2007
2010
2013
2016
2019
Gross government debt - emerging economiesGross government debt - advanced economiesExternal debt -emerging economies
IMF
Forecast
Improving ‘Ease of Doing Business’
and growing local capital markets,
support the investment thesis for
emerging market companies.
The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future
returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset
Management (France) accepts no liability for any failure to meet such forecast, projection or target.
6 Non contractual document
Economic growth
This robust development has indeed translated
into economic growth.
Emerging markets have outpaced developed
markets in terms of Gross Domestic Product
(GDP) growth, and now contribute about a third
of overall global GDP and half of global growth
(Figure 10). To this end, it is a matter of time
before China becomes the world’s largest
economy. We may also see rapid growth within
frontier markets such as Vietnam and Argentina.
This tremendous growth has been achieved
with an improving current account balance
(Figure 11).
But countries aren’t standing still. Several are
planning additional structural reforms, which
could continue to reinforce their long-term
economic growth (Figure 12).
Figure 11
Current account balance as a % of GDP
Source: HSBC Global Asset Management, International Monetary
Fund, World Economic Outlook Database, October 2016. For
illustrative purposes.
China • Further privatisation
• State-owned enterprise reform
• One-belt, One-road program
• Hong Kong–Shanghai Stock Connect
• Interest rate liberalisation
• Capital account liberalisation, free-
floating currency
India • Unlock bottlenecks
• Goods & Services Tax Bill
Philippines • Infrastructure spending
Korea • Chaebol reform
Brazil • Labour and pension reform
• Reduce corruption
Mexico • Energy reform
• Financial reform
• Labour and education reform
• Legal and judicial reform
Figure 12
Examples of potential structural reforms
Source: HSBC Global Asset Management as at 30 September
2016. For illustrative purposes.
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6%
1997
2001
2005
2009
2013
2017
2021
Emerging economies Advanced economies
Forecast
Forecast
Figure 10
Contribution to global GDP growth
Source: HSBC Global Asset Management, DataStream as at 30
September 2016.
For illustrative purposes.
-2%
0%
2%
4%
6%
1981
1986
1991
1996
2001
2006
2011
2016
Emerging markets Developed markets
The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future
returns. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset
Management (France) accepts no liability for any failure to meet such forecast, projection or target.
7 Non contractual document
We believe that, over the long term, corporate
profits and growth expectations for those profits
are the fundamental drivers of share prices and
equity markets.
Emerging market profits grew rapidly from
December 1999 to their peak in July 2011, but
have trended lower since then (Figure 13).
Unsurprisingly, we see valuations, whether
Price-to-Book or Price-to Earnings, near historic
lows and close to the bottom of a trading range
(Figure 14).
Weak global growth has affected profitability
(Return On Equity) in both emerging and
developed markets, suggesting that trends in
emerging markets are not unique (Figure 15).
For emerging market corporates, lower ROE in
recent years seems to owe far more to
investments in future growth than to lacklustre
business performance.
Economic expansion, industrialisation and new
product development require capital
expenditure, and higher depreciation has put
pressure on both margins and asset turnover,
while requiring increased financing and
leverage.
The relationship between profitability and
valuation suggests an investment opportunity,
in our view (Figure 16). If investors start seeing
a recovery in profitability, they may anticipate
an expansion in valuation multiples.
As a consequence, while low valuation is often
given as the primary reason to invest in
emerging markets, we believe that investors
should focus first and foremost on the direction
of corporate profits. To this end, consideration
should also be given to Environmental, Social,
Governance (ESG) factors that may materially
impact company fundamentals. We discuss this
theme in more detail in the following section.
Profit outlook
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Net income, USD billions (LHS)
MSCI Daily TR Emerging Markets Net USD (RHS)
Figure 16
The relationship between profitability and
valuation
Trailing estimates, Emerging Markets: MSCI Emerging Markets USD and Developed Markets: MSCI World USD Source: HSBC Global Asset
Management, DataStream, Bloomberg as at 30 September 2016. For illustrative purposes. The performance figures displayed in the
document relate to the past and past performance should not be seen as an indication of future returns.
Figure 14
Price-to-Book valuation (x)
Figure 13
Emerging market profits
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Emerging Markets Developed Markets
Figure 15
Return on Equity
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Profits by sector
The relatively flat profit growth of emerging
markets masks underlying trends at the sector
level.
The growth in profits in the energy and materials
sectors was a key driver of overall emerging
market profits throughout the period to 2011,
comprising 37% of overall profits at December
2011. Since then, these profits have declined
almost USD200 billion to 11% of overall profits
because of softer commodity prices (Figure 17).
A rise in commodity prices could reduce this
headwind to overall emerging market profit
growth.
The financial sector generates by far the largest
portion (59%) of overall emerging market
profits, and has helped offset commodity
weakness, but profit growth has been flat given
the environment of subdued economic growth
and lower interest rates (Figure 18).
The technology and healthcare sectors have
delivered profit growth despite economic
headwinds (Figure 19).
Within technology, existing companies have
grown while world-class “New Economy”
companies such as Tencent, Alibaba and
Yandex have listed1. Rapid technology
adoption could support higher levels of
economic growth over the long term, despite a
recent dip in profits. The index weight of
technology in the MSCI Emerging Markets
index is now 23.6% as compared to 15.1% in
the developed markets MSCI World.2
Healthcare has also shown steady growth,
though starting from a smaller base. This
underscores the increasing consumption of this
kind of products and services that should
continue to support profits in this sector.
Consumer sector profits (Figure 20) have
moved sideways recently, as have industrials’
profits, while telecom and utilities have been
facing deflationary pressures.
Figure 17
Commodity sectors profits
Figure 18
Financial sector profits
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Figure 19
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Technology Health Care
1 For illustrative purposes only and does not constitute any investment recommendation in the above mentioned companies.2 For illustrative purposes. Source: Bloomberg as of 31 October 2016. Source: HSBC Global Asset Management, Datastream as at 30 September 2016.
For illustrative purposes. The performance figures displayed in the document relate to the past and past performance should not be seen as
an indication of future returns.
The financial sector contributes the
most to profits generated in
emerging markets, while technology
and healthcare drive profit growth.
9 Non contractual document
Importance to company profits
We see ESG factors as a key driver of long-
term profits, as these factors can have a
material impact on a company’s fundamental
outlook. Asset managers have been
encouraged to consider ESG factors in
investment decisions, and we see such ESG
integration as an essential component of
investment due diligence, and critical to a
holistic, sustainable Responsible Investment
approach that would include engagement,
voting and reporting.
For active managers, the consideration of a
company’s ESG profile could sit alongside other
analyses like the strategic or financial analysis
to provide investment insight, whether
evaluating equity or credit. Whether ESG factors
can drive investment returns is often debated
and academic studies are inconclusive. In our
view, investment opportunity is driven by
whether a company’s fundamental outlook is
reflected in the share price, and it would be
difficult to argue that a single piece of analysis in
isolation could be a predictor of performance.
Broad support and reinforcement
The attention to ESG has been reinforced from
several directions. The PRI (Principles for
Responsible Investment) have been pivotal in
developing awareness and commitment. More
asset owners are requiring asset managers to
communicate how they integrate such analysis
in their investment decision-making. Stock
exchanges are also involved. For example, the
Bovespa in Brazil manages its own
sustainability index, while the Johannesburg
Stock Exchange is working to increase South
African corporates’ ESG disclosure. The Hong
Kong Exchange announced ESG would form
part of its reporting requirements going forward,
stating "Issuers starting to report on their ESG
performance may reap the benefits of better
risk management, improved access to capital,
greater capacity to meet supply chain demands
and lower operational costs, to name a few of
the advantages that ESG reporting could bring
to issuers' businesses“. In June 2016, China’s
State Administration of Taxation issued much
more stringent disclosure rules on related-party
transactions.
ESG in emerging markets
The nature of developing economies may
encourage investors to consider ESG issues. In
emerging markets, there is a prevalence of
environmentally sensitive sectors e.g.
resources and power generation. Global issues
such as water availability and climate change
may have a disproportionate impact on
developing countries. Social issues are present
given labour-intensive industries and the impact
of investments on communities. Governance
issues are also visible, with State-Owned
Enterprises or family-owners as majority
shareholders.
Such analysis is important at the company
level, as there is a breadth of scores across
companies (Figure 21), and because a
company’s ESG profile can change. We have
seen that, within three and five years, about
half of the universe improved while the other
half saw their ESG score declining (Figure 22).
This data highlights how the availability of
emerging market ESG information has
improved. Currently, investors can access
information for over 1,600 emerging market
companies, whereas about 280 companies
have a three-year history and only about 80
companies have a five-year history.
Environmental, Social, Governance (ESG)
Figure 21
Distribution of ESG scores
(Industry-adjusted score: 2015)
Based on companies within the MSCI ESG database
Source: HSBC Global Asset Management, MSCI as at 30
September 2016. For illustrative purposes.
Figure 22
Distribution of ESG score change
(Industry-adjusted score: 2010-2015, 2012-2015)
Based on companies with historic information within the MSCI
ESG database
Source: HSBC Global Asset Management, MSCI as at 30
September 2016. For illustrative purposes.
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284
Companies
2010-2015 2012-2015
0123456789
10
237
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677
952
1671
Companies
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The environment and emerging markets
Within the Environment pillar of ESG, it is clear
that environmental issues, climate change and
carbon pricing can impact long-term profits, and
recent environmental initiatives have amplified
these ESG trends.
For example, by signing the Dubai declaration
in late October 2016, the core of the United
Arab Emirates’ financial institutions have
committed to integrating ESG and Green
Investing in their practices. Another illustration
is the deal agreed in Kigali, Rwanda, in October
2016, whereby 197 countries signed a legally-
binding document committing to reducing the
use of hydro-fluorocarbons, a powerful
greenhouse gas used in refrigerators and air-
conditioners.
Although the latter is undoubtedly important, it
cannot eclipse the United Nations Conference
on Climate Change, COP21, which brought
increased attention to the broad impact of
climate change on the global economy.
The Paris Agreement on Climate has now been
ratified by some 76 countries committing to help
limit global warming to 2oC and totalling close to
60% of the world’s CO2 emissions. Three of the
largest emerging markets are also among the
world’s five largest carbon emitters: together
Brazil, India and China represent 26% of the
world’s CO2 emissions.
These three countries have ratified the Paris
Agreement, and they are considering using
market mechanisms to further their aims.
Whilst a global carbon price wasn’t agreed in
Paris, it was referenced in the Agreement,
which recognises the “important role of
providing incentives for emission reduction
activities, including tools such as domestic
policies and carbon pricing.” Indeed, more than
90 of the National Determined Contributions to
the Paris Agreement included proposals for
emissions trading schemes (ETS), carbon
taxes and other carbon-pricing initiatives.
In fact, in 2015 the World Bank Group and the
OECD issued a report on carbon pricing
schemes using input from the IMF. Globally,
there are already 40 national carbon-pricing
schemes – such as ETS or carbon taxes – and
another 23 at the level of cities, states and
regions (Figure 23). At the time these
represented about 7 billion tonnes of CO2, or
12% of global greenhouse-gas emissions.
Carbon pricing took a major step forward in
September 2015 when China announced its
plans for a national ETS. Chinese President Xi
Jinping stated that the national ETS would
begin in 2017, and initial indicators suggest that
the scheme will cover the iron and steel, non-
ferrous metals, power generation, cement and
glass, chemicals, petrochemicals, pulp and
paper, and aviation sectors.
Figure 23
Existing, emerging and potential regional, national and subnational carbon pricing initiatives
(ETS and tax).
Source: World Bank Group 2015
ETS implemented or scheduled
for implementation
Carbon tax implemented or
scheduled for implementation
ETS or carbon tax under
consideration
ETS and carbon tax implemented
or scheduled
ETS implemented or scheduled,
tax under consideration
Carbon tax implemented or
scheduled, ETS under
consideration
11 Non contractual document
Going forward, we believe the Paris Agreement
will prove to be a game changer, as it will very
likely trigger a wave of changes in terms of
power generation, smart-grid-related innovation,
transport and many other industries as part of an
industrial transition to a low carbon economy
that creates opportunities and risks as well as
winners and losers.
These parameters will increasingly become
drivers of investment decisions. Companies that
consider this transition within their corporate
strategy should be better placed to maintain or
enhance their competitive position, with the
potential to deliver sustained or improving
profitability in the future.
As asset managers sign the Montreal Carbon
Pledge, committing to report investment portfolio
carbon exposure, carbon could begin to
influence portfolio decision-making.
Analysis suggests that relatively few emerging
market companies comprise a significant
proportion of total emissions within the listed
emerging market universe (Figure 24); these
may be most exposed to regulation and
industrial change.
Universe comprises emerging markets companies within the
Trucost database
Source: HSBC Global Asset Management, Trucost; 2014 emissions
as at April 2016. For illustrative purposes.
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Figure 24
Cumulative emissions (CO2 equivalents)
12 Non contractual document
Investment opportunity
Emerging market beta
For asset allocation and investment decision
making purposes, we assess medium-term
expected returns for emerging markets equity.
We base this assessment on dividend yield,
earnings per share growth, and market re-
pricing.
The results show that, as at 30 September
2016, emerging market equities’ expected
returns appear attractive versus developed
market equities, government bonds and cash
(Figure 25).
In a low interest-rate environment, emerging
markets have also been offering an attractive
dividend yield relative to developed market
equities, indicating discipline in their cash flow
management (Figure 26).
Emerging markets equities could be additive to
an equity allocation. The correlation between
emerging market and developed market returns
has remained relatively low, which means an
allocation to emerging markets may not
significantly raise the overall portfolio volatility.
Alpha opportunity
Many investors may wish to seek excess return
over emerging market beta.
The inherent excess volatility in emerging
markets may enable an alternative weighting
scheme, such as fundamental weighting or
lower volatility, to utilise systematic rebalancing
to capture excess returns.
For active stock selection, there is an array of
investment opportunities – over 800 names
across 23 countries and 11 sectors in the
standard MSCI Emerging Markets index – and
the wide breadth of historic stock returns
confirms that stock selection has the potential to
add value.
Looking forward, we see a dispersion in the
relationship between Profitability and Valuation
(Figure 27), indicating a potential investment
opportunity that could be confirmed through
proprietary fundamental research.
As we have shown in the previous section, ESG
analysis has the potential to becoming an
integral component of the investment research
and due diligence that active managers carry.
By providing an additional insight, the ESG
profile of a company, may improve stock
selection and search for alpha.
Figure 25
Expected 10-year nominal returns
(Annualised, USD unhedged, %)
Source: HSBC Global Asset Management as at 30 September 2016. For
illustrative purposes only. Any forecast, projection or targets where
provided is indicative only and is not guaranteed in any way. HSBC Global
Asset Management accepts no liability for any failure to meet such
forecast, projection or targets.
(1,6%)(1,0%)
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4,2%6,9%
5,9%
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(5%) 0% 5% 10% 15%
Japan JGBsGerman Bunds
UK GiltsUS Government Bonds
US Corporate CreditEUR High Yield
US High YieldLocal EM Debt
Global listed real estate
Developed Markets
Asia ex JapanEmerging Markets
Global
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déc.-
09
déc.-
10
déc.-
11
déc.-
12
déc.-
13
déc.-
14
déc.-
15
Emerging Markets Developed Markets
Figure 26
Dividend yield
(12m forward, %)
Source: IBES, MSCI, DataStream, HSBC Global Asset Management as
at 30 September 2016. For illustrative purposes.
0
2
4
6
8
0% 10% 20% 30% 40% 50%
Price-t
o-B
ook (
x)
Return on Equity (%)
Source: HSBC Global Asset Management as of 30 September 2016. For
illustrative purposes.
Figure 27
Dispersion in Profitability-Valuation
(Return on Equity and Price-to-Book)
The performance figures displayed in the document relate to the
past and past performance should not be seen as an indication of
future returns.
13 Non contractual document
Tactical allocation considerations
In making tactical allocations to emerging
market equities, investors have traditionally
considered the direction of oil prices, the
strength of the US Dollar, and the direction of
interest rates when aiming to understand the
potential direction of emerging market equities.
Oil price sensitivity
There appears to be an historic positive
relationship between the level of emerging
market equities and the level of oil prices
(Figure 28). Oil prices could be an indication of
economic growth, with marginal demand largely
arising from emerging markets.
Certainly, a rise in oil and commodity prices
could have a beneficial impact on overall
profitability and index return, though the impact
could be more muted than expected, as energy
and materials names now comprise only a
13.6% weighting within the MSCI Emerging
Markets index.
US Dollar sensitivity
There appears to be an historic inverse
relationship between the level of emerging
markets and the level of the Dollar Index,
possibly reflecting the historic sensitivity of
external debt positions of emerging market
countries to foreign exchange movements
(Figure 29). As we have seen, external debt
positions have fallen over time, and there has
been a shift away from short-term debt towards
medium to long-term debt. Foreign exchange
reserves may offer a buffer for short-term
external debt.
A strong US dollar may also be beneficial to
emerging market exports.
Direction of interest rates
There is a relatively low correlation between
emerging market returns and changes in US 10-
year Treasury yields (Figure 30), averaging 0.20
over the past twenty years.
The communications of the US Federal Reserve
may contribute to this, as policy moves are well-
signalled.
Rising interest rates may also signal confidence
in economic growth, which could be supportive
of emerging market profits, though it may raise
the discount rate for long duration assets.
Source: HSBC Global Asset Management, Bloomberg as at 30
September 2016. For illustrative purposes.
Figure 29
Dollar Index
(DXY)
60
80
100
120
1400
200
400
600
800
1 000
1 200
1 400
janv.-
95
janv.-
97
janv.-
99
janv.-
01
janv.-
03
janv.-
05
janv.-
07
janv.-
09
janv.-
11
janv.-
13
janv.-
15
MSCI Emerging MarketsDollar Index (DXY inverted, RHS)
Figure 28
Oil prices
(Brent Crude $/bbl)
0
50
100
150
200
0
200
400
600
800
1 000
1 200
1 400
janv.-
95
janv.-
97
janv.-
99
janv.-
01
janv.-
03
janv.-
05
janv.-
07
janv.-
09
janv.-
11
janv.-
13
janv.-
15
MSCI Emerging MarketsBrent Crude ($/bbl, RHS)
Source: HSBC Global Asset Management, Bloomberg as at 30
September 2016. For illustrative purposes.
Source: HSBC Global Asset Management, Bloomberg as at 30
September 2016. For illustrative purposes.
Figure 30
Correlation with interest rate changes
(MSCI Daily TR Emerging Markets Net vs
US 10-Year Treasury yield)
0
2
4
6
8-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
janv.-
96
janv.-
98
janv.-
00
janv.-
02
janv.-
04
janv.-
06
janv.-
08
janv.-
10
janv.-
12
janv.-
14
janv.-
16
Correlation
US 10-Year Treasury yield (%, RHS)
The performance figures displayed in the document relate to the past and past performance should not be seen as an indication of future
returns.
14 Non contractual document
The secular economic development theme in
emerging markets remains robust, and we see
profit growth as key in supporting further
emerging market equity appreciation.
We believe there are several potential catalysts
for profit growth:
• Improvements in global growth
• Stabilisation in commodity sector profits
• Accelerating growth of local economies
• Valuation multiple expansion on rising
expectations for profit growth
• Company (and investor) attention to
Environment, Social and Governance
considerations
We believe emerging market equities can be a
core building block of an asset allocation, as
correlations between emerging market and
developed market equity returns has remained
relatively low.
Apparent headwinds, such as oil prices, US
Dollar strength, and interest rate hikes, appear
to reflect an historic perspective rather than
current reality.
While the US Presidential election may create
headwinds and uncertainty leading to market
volatility, we believe asset allocators and active
managers can be proactive in looking for
attractive entry points and take advantage of
perceived mispricing.
Capturing this investment potential of emerging
markets requires robust investment solutions.
HSBC Global Asset Management offers a
breadth of equity investment capabilities that are
differentiated by design and tailored to deliver
clients’ investment objectives.
Conclusion
Contacts
Client Management
Tel: +33 (0)1 41 02 51 00
Email: client.services-am@hsbc.fr
15 Non contractual document
Important information
This document is distributed by HSBC Global Asset Management (France) and is only intended for professional investors
as defined by MiFID. The information contained herein is subject to change without notice. All non-authorised
reproduction or use of this commentary and analysis will be the responsibility of the user and will be likely to lead to legal
proceedings. This document has no contractual value and is not by any means intended as a solicitation, nor a
recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful.
The commentary and analysis presented in this document reflect the opinion of HSBC Global Asset Management on the
markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Global
Asset Management (France). Consequently, HSBC Global Asset Management (France) will not be held responsible for
any investment or disinvestment decision taken on the basis of the commentary and/or analysis in this document.
It is important to remember that the value of investments and any income from them can go down as well as up and is not
guaranteed. Investments in emerging markets are by their nature higher risk and potentially more volatile than those
inherent in established markets. Fluctuations in the rate of exchange of currencies may have a significant impact on
performance. The value of the underlying assets are strongly affected by interest rate fluctuations and by changes in the
credit ratings of the underlying issuer of the assets. All data from HSBC Global Asset Management unless otherwise
specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not
independently verified. Past performance is not a guide to future performance.
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