Emerging Market Stocks Make Gains
Emerging market stocks rose, heading for the biggest weekly gain in more than two months, as economic data from China to Japan and the U.S. bolstered confidence in the global expansion.
The MSCI Emerging Markets Index (MXEF) advanced 0.5 percent to 1,063.20 on Thursday in Hong Kong, a two-week high. The gauge has risen 1 percent this week, poised for its biggest weekly gain since 4 January. China exports rose more than forecast in February, data showed on Friday. Japan’s economy exited a recession, while jobless claims in the U.S. unexpectedly fell last week. Data on Friday may show U.S. employers added 165,000 people to payrolls in February and the unemployment rate held at 7.9 percent, according to economists.
“The market remains well supported because of the recent economic data, which is playing catch-up to investors’ expectations,” Geoffrey Ng, who helps oversee USD1.8 billion as chief executive officer at Hong Leong Asset Management Bhd., in Kuala Lumpur.
Malaysian Currency Volatilities
Currency swings are rising in Malaysia at the world’s fastest pace as concern mounts that the ruling coalition will lose its 55-year grip on power after attracting more foreign capital than any other emerging market except Mexico.
Three-month implied volatility for the ringgit, a measure of expected exchange-rate moves used to price options, jumped 2.2 percentage points to 7.4 percent in 2013, more than any of the main global currencies. The ringgit has lost 1.6 percent this year and reached a five-month low in February as Credit Suisse Group AG and ING Groep NV cut their forecasts.
Polls show support for Prime Minister Najib Razak, who embarked on a USD 444 billion development plan to build railways and power plants, is the lowest since 2011 ahead of elections due before the end of June. Investors may pull from the local bond market as much as USD 10 billion, or 24 percent of their total holdings, as opposition leader Anwar Ibrahim pledged to review highway-toll contracts and the granting of tax permits to large companies, according to Credit Suisse.
“The volatility rate reflects worries of capital outflows in the lead up to the election, which looks uncertain at this time,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore, said in an interview. “In the long term, I am still positive on the fundamentals of the ringgit and the bond market in Malaysia.”
Malaysia, Southeast Asia’s third-largest economy after Indonesia and Thailand, attracted investment, including bonds and stocks, equivalent to 4.5 percent of gross domestic product in the year through September, the second-highest percentage among 21 developing nations after Mexico, according to strategists at Goldman Sachs.
Rising strength of the US Dollar
The dollar rose to the strongest since August 2009 against the yen on speculation an improving U.S. job market will prompt the Federal Reserve to slow stimulus even as Japan pledges to extend so-called quantitative easing.
The U.S. currency gained versus all except two of its 16 major counterparts before a report that economists said will show American employers stepped up hiring in February. The euro strengthened for a third day against the yen as analysts said German data today will show industrial production increased for a second month in January. Sweden’s krona fell against the dollar and the euro after industrial production declined.
“There’s been a market realization that the real economy in the U.S. is in a growth phase,” said Peter Frank, global head of currency strategy at Banco Bilbao Vizcaya Argentaria SA in London. “That’s a really strong reason to be bullish on the dollar. By the end of this year, the Fed will start to give details of how it’s going to withdraw its accommodative policy. There’s nothing positive for the yen right now.”
The dollar advanced 0.8 percent to 95.54 yen on Friday morning in London after climbing to 95.61, the highest level since 13 August 2009. The U.S. currency rose 0.1 percent to USD 1.3092 per euro after dropping 1.1 percent on Thursday, the biggest decline since 10 January. The yen fell 0.7 percent to 125.11 per euro.
Spotlight on Thai Stocks
Never before have Thai stocks rallied so much at a time when foreign investors were heading for the exit.
The benchmark SET Index (SET) rose 4.6 percent last month even as international money managers sold a net USD 583 million of the nation’s shares, the biggest outflow among the top 10 Asian markets. The advance, propelled by USD 611 million of purchases by domestic investors, is the largest for any month when net overseas withdrawals exceeded USD 500 million.
Thai citizens are driving equity gains as the nation’s USD 377 billion economy grows at the fastest pace since at least 1993 and local incomes climb. While Morgan Stanley is advising clients to cut stock holdings after valuations rose to record highs, Aberdeen Asset Management and ING Investment Management are still bullish. The SET index has recovered every time when foreign selling coincided with monthly losses since September 2008, rallying an average 22 percent in the next 12 months.
The SET index is up 13 percent this year. The MSCI Southeast Asia Index (MXSO) has advanced 4.9 percent in 2013, while the MSCI Emerging Markets Index has increased 0.5 percent.
Outflows from Thai stocks last month compare with USD 1.2 billion of inflows into Indonesia and USD 146 million of net purchases in the Philippines. The Jakarta Composite Index and the Philippine Stock Exchange Index both climbed 7.7 percent in February.
Capital outflows and Thailand’s widening current-account deficit spurred the government to devalue the baht on July 2, 1997, a move that helped spark the Asian financial crisis. Foreign investors withdrew about 30 billion baht, or USD 1 billion at current exchange rates, from Thai stocks in the 12 months ended June 1997.
Thailand’s economy and its financial markets have become more resilient to foreign withdrawals, according to ING’s Huang. The nation’s foreign-exchange reserves have grown more than 500 percent since the Asian crisis to about USD 179 billion as of 22 February, central bank data shows. Thailand will probably record a current-account surplus equivalent to 0.1 percent of gross domestic product in 2013, data from the International Monetary Fund show.
GDP expanded 18.9 percent in the three months through December, the fastest pace since Thailand began compiling figures in 1993, as manufacturing rebounded from the worst floods in almost 70 years in 2011, the government said on 18 February. The economy grew 6.4 percent in 2012, compared with the decade average of 4.2 percent. The expansion may slow to between 4.5 percent and 5.5 percent this year, according to government estimates.
Rising incomes and tax incentives for long-term investment have spurred more Thais to put money in stocks. The country’s per-capita GDP has increased to about USD 5,850 from USD 3,900 five years earlier, according to the Washington-based IMF. Thailand allows citizens to make tax-free investments of as much as 1 million baht a year into retirement and long-term equity funds.
The long-term prospects for Thailand’s economy and stock market are both positive because infrastructure spending is increasing and the country is luring foreign direct investment, Medha Samant, an investment director at Fidelity Worldwide Investment, which oversees about USD 240 billion, said by phone from Hong Kong on 28 February. The USD 1.2 billion Fidelity Thailand Fund (FIDLTHI) returned about 13 percent this year.
Prime Minister Yingluck Shinawatra’s government approved on 27 February a 2 trillion baht infrastructure-spending plan to build high-speed trains and mass transit networks.
“The next catalyst will be when the government starts to disburse money regarding these projects,” Pong Ho Yin, a Hong-Kong based money manager at Allianz Global Investors, said. “That will provide more confidence to the foreigners.”
Earnings in the SET index will probably climb 28 percent in the next 12 months, versus 18 percent for MSCI’s developing-nations gauge, according to projections coomplied by Bloomberg.
Many Thais “have had great success and spectacular returns by investing in companies with sound fundamentals such as strong earnings growth,” according to Sompong Cholkadeedamrongkul, a 60-year-old private investor in Bangkok. “There were several occasions that heavy selling by foreign investors gave me opportunities to buy shares of those companies at bargain prices.”