I think Charles Robertson, Global Chief Economist, at EM bank Renaissance Capital is spot on when he says this week “emerging markets are going to get more attention” as the Covid crisis moves into its next phase – infecting the developing world. It is an argument I’ve certainly been tracking on this blog.
The table below is from analysts at Numis and shows total EM equity returns for the week commencing 13th April. It shows a massive dispersion in returns as the first pulses of this EM crisis wash through the system. Asian markets have rebounded strongly but the Middle East and Latin America are now feeling the full force. Saudi Arabia clearly ahs its own challenges as does Russia, but I’m surprised that Turkey hasn’t been hit harder yet in terms of selling by investors.
Emerging Equity Markets – Total Return w/c 13 April 2020
According to Robertson at Renaissance we’re starting to see peak numbers come through.
“On 17 Apr new peak cases were seen in Brazil, Kazakhstan, Japan, Egypt, Mexico, Morocco, Saudi, Qatar, Russia, UAE, Ukraine. On 18 April, new peak cases were seen in Egypt (again), India, Mexico (again), Pakistan, Russia, Saudi (again), Singapore. On 19 Apr new peak cases were seen in Russia (again), Kuwait, Pakistan (again), Mexico (again), Nigeria, India (again, 48% of their cases have come within the last week) – this despite India’s strong lockdown.”
Qatar is now up near the top-ranking countries for active cases (that is confirmed minus deaths and recovered) cases. According to Robertson, “Turkey’s curfew might be helping (its new confirmed cases might have peaked a week ago) .. its active cases are above Germany, Denmark, Austria, which are in decline…Meanwhile Djibouti now takes top place for Africa (population 1m .. it is small .. lots of foreign military bases there which brought the infection in)”.
“Gulf countries are seeing big jumps. Talk that the immigrant communities in Qatar are where the infections are booming (so probably young, unlikely to show a big rise in deaths). Russia is on course to join the above chart in the next few days. Brazil keeps adding a lot of recovered cases – it and Mexico are understating cases (so is Algeria). India’s cases are booming but yesterday were still just 1.1 cases per 100k people, Nigeria is at 0.2 .”
Watch the gap on Earnings
Andy Lapthorne at SocGen suggests that we keep a close eye on how earnings estimates in the developed world – always slightly dodgy in quality – react to the economic recession.
On his numbers “2020 global EPS forecasts have been cut by 29% and 2021 EPS estimates have dropped by 20%, translating into a 21% decline in profits this year, followed by a very uniform 21% rise in 2021. By the end of 2021, profits are forecast to be almost back to where they ended 2019, give or take a few percentage points. Clearly this will not be the case.”
“However, in recent days this “flash” consensus has stabilised, having fallen by 1% daily for most of the last month. Again, remarkably many ex-financial companies are now “beating” expectations as they report, which is less down to economic stabilisation and more a function of incredibly efficient corporate communications departments. But perhaps this cessation of rampant downgrading is partly behind the strong bounce back.
“That said, it is more of the same; growth stocks and those with relatively strong EPS momentum are leading the rebound, whilst value stocks and anything with a high dividend or distribution yield is floundering. Importantly, low price-to-book, the “go to” factor in an economic bounce-back continues to lose money. Sustained market rebounds are usually based around cheap valuations, improving macro conditions and most importantly value stocks bouncing back strongly…
“Time and time again, investors have demonstrated their willingness to buy equities in the knowledge/hope that central banks, and the FED specifically, had their back. Yet there is zero evidence historically that markets can go up on a sustained basis whilst profits continue to slump. Equity markets may have bounced but investors still seem to be positioning themselves for a drop.”
Where’s all the physical Gold gone
There’s a great article on ETF Stream by Tom Eckett today about gold and the physical supply squeeze.
You can read it here… https://www.etfstream.com/feature/11123_etf-insight-why-gold-etf-spreads-widened-to-unprecedented-levels-amid-coronavirus-turmoil/
“…. investors trading the precious metal towards the end of March would have found themselves paying far more than usual as bid-ask spreads blew out to record-wide levels. Highlighting this, Europe’s cheapest gold ETP, the $2.5bn Amundi Physical Gold ETC (GOLD) saw its spreads widen to 1.01% on 24 March while the spreads on the $8bn WisdomTree Physical Gold ETC widened to 0.82% on the same day. Spreads of this nature on gold ETCs are “unprecedented”, according to Jim Goldie, head of capital markets, EMEA, at Invesco, which runs the $10.4bn Physical Gold ETC (SGLD). Usually, gold ETPs trade at 0.02%-0.03% spreads in line with the spot price spreads, however, a dislocation in the Exchange of Futures for Physical (EFP) market drove the ETF spreads to levels not seen before in the gold market. The EFP market allows traders to switch to and from futures and spot positions.”