Emerging Markets Recover from a poor January

The emerging markets sector made up some ground in February as investors once again embraced riskier assets. Having languished at the bottom of the league tables for January and most of February, a last-minute surge has left funds in the sector up 4.1% on average.

The Asia Pacific excluding Japan sector is slightly lower with a 2.93% gain. The weakest area was, predictably, Eastern Europe, which was hit by the fall-out from the Greek sovereign debt crisis. The MSCI Emerging Europe index was down 5.93% over the month with Hungary and the Czech Republic faring only a little better, dropping 3.45% and 3.85% respectively. A number of commentators have suggested Eastern Europe is the region most likely to house ‘the next Greece’.

Russian markets were also weak in spite of a small rise in the oil price, with the MSCI Russia index down 6.33%. Russia’s fourth-quarter GDP rose 0.3% over the previous quarter but weak export activity continues to weigh on the manufacturing sector.

In Asia, China continued to work its magic. It posted growth of 10.7% in the final quarter but said it will continue to target 8% growth in 2010. The government surprised markets by introducing a small level of monetary tightening though this was welcomed by those who see a nascent asset bubble in the region. Inflation dropped to its lowest level in two and a half years with factory gate prices falling 3.3%. A short period of deflation remains a possibility.

China’s neighbours have enjoyed the fruits of its riches. Thailand and Taiwan – both big exporters to China – have seen a speedy rebound in GDP, with the latter seeing a rise of 9.2% in GDP in the final quarter of 2009. Thailand meanwhile saw a rise of 5.8%. South Korea and Indonesia are also doing well, but have seen domestic demand grow as well.
The FTSE Xinhua index rose 2.16% over February, the Hang Seng rose 3.1% and the Shanghai 180 index of Chinese-listed shares rose 2.3%. The Chinese investment community also saw a new champion in the form of veteran investor Anthony Bolton, who launched his Fidelity Chinese Special Situations trust at the end of the month.

Elsewhere, Brazil’s Bovespa index paused after its strong run, rising 1.7% over the month. However, the biggest news in the region was the earthquake disaster in Chile. This appeared to have little impact on markets, which were flat, and the copper price ticked up, though not significantly, and indeed investors look to be hoping the devastating human cost is not matched by an economic nightmare.