Homepage / Investment / How Trump can crush the emerging markets stock rally in 2018
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election

Investment

How Trump can crush the emerging markets stock rally in 2018

If you wanted to crush President Donald Trump last year, there was a way even more efficient than giving indiscreet interviews to Michael Wolff: betting on emerging markets in Latin America and Asia, where the returns made Dow 25,000 look as tiny as Kim Jong Un’s button.

But can emerging markets keep pushing higher in 2018? Still relatively cheap stocks, as well as structural reforms in a long list of nations, suggest they can, experts say. Unless, that is, Trump delivers on campaign promises to restrict global trade, or at least tries to hold it up while the rules of the game are rewritten to favor the United States.

He has threatened to scrap the 2011 U.S. free trade deal with South Korea, prompting Seoul to begin preparations for new talks, and said just last week that terminating the North American Free Trade Agreement would yield “the best deal.” A more isolationist America could ignite a trade war with China and cause ripple effects in global trade and the world’s economy. That could hurt emerging markets.

So, too, could any geopolitical flare-ups, such as a Trump nuclear war showdown with North Korea. Already this year the war of words between the president and Kim Jung Un has captured headlines.

The MSCI Emerging Markets Index rose 37 percent last year, handily beating the 19.4 percent climb in the Standard & Poor’s 500. That index tracks 846 companies in 24 countries, representing about 85 percent of the market capitalization of the markets it follows. The biggest names are familiar to U.S. investors: Chinese internet companies Tencent Holdings and Alibaba Group, Korea’s Samsung Electronics and Taiwan Semiconductor Manufacturing.

That may be the beginning of a longer move. Valuations are still low, partly because last year’s jump came after the MSCI EM Index lost ground in three of the prior four years and four of the prior six. Earnings are improving, and the P/E ratio of the index is just 12.5 times this year’s projected earnings, according to Yardeni Research.

“The reason to be confident is that there isn’t a single engine” for sustained emerging-markets gains, said Kate Moore, chief equity strategist at BlackRock. “There are multiple engines.”

The simplest reason for the EM resurgence over the last 12 months is that a lot of markets, including China, Chile and Brazil, were rebounding from corrections or bear markets — in both stock prices and earnings. Even India had a big dip earlier in the decade.

Wracked by worries about China and by low commodity prices, emerging markets corporate earnings fell by about 7 percent a year since 2011, BlackRock research reveals. Important companies were hurt by the falling price of oil and other commodities, as well as by the Chinese growth slowdown and excessive expansion of productive capacity, Moore said in an interview.

More from Global Investing Hot Spots:
6 global trends that can derail your portfolio in 2018
4 international stock bets for every investor
How to get good returns on global stocks

Now the earnings recession has ended and profits have room to rise further, said Chuck Knudsen, emerging markets equity portfolio specialist for T. Rowe Price Associates in Baltimore.

“Profit margins in emerging markets still remain below the average over the past 20 years vs. the U.S., where margins are near all-time highs,” Knudsen said. “Income per capita is rising, the middle class is growing, and consumption is becoming a more significant component of EM economies,” such as China, he said.

Most of 2017’s strong returns can be traced to earnings, Knudsen said, with a smaller amount (about 6 percent to 7 percent) due to local currencies gaining value against the dollar.

Emerging markets stocks are cheap after the earnings gains, BlackRock’s Moore argued, trading at only 12.3 times 2018 earnings estimates. That’s up from 11.6 last year and 26 percent cheaper than U.S. shares, she said. (Using a different measure, Yardeni says U.S. stocks trade at 18.5 times this year’s projected earnings, putting the emerging markets discount near 50 percent.)

Emerging markets stocks are usually cheaper than in more stable developed markets, but earnings growth in emerging markets means the spread hasn’t narrowed materially during the last year, Knudsen said.

Valuations are low on a price-to-book ratio, too, Merrill Lynch strategist Ajay Kumar said. Stocks are trading below two times book value, well below the three times book level that historically ends emerging market rallies, he said. In a November interview he said profits in Asia, excluding Japan, would rise about 20 percent in 2018. Looking at the entire emerging markets universe, including Latin America, T. Rowe Price estimates profits will grow 25 percent to 30 percent, Knudsen said.

The moves are being driven partly by the broad global expansion and partly by structural reforms in many emerging markets, BlackRock’s Moore said.

Among the most important have been moves by China’s government to limit overinvestment in export industries, such as steel, while shifting money to consumer-facing businesses, she added.

“That has paid enormous dividends for China,” she said.

Even after the surge in emerging markets, investors haven’t plowed cash in numbers pointing to any overdone euphoria, Knudsen says.

“Investors are still underweight EM,” he said. “The EM economies represent close to 50 percent of the global economy and more than 50 percent of global growth since the global financial crisis, but they are about 12 percent to 13 percent of global indexes and less than that in the average global fund.”

For investors who want to be in emerging markets but don’t have the time to learn individual companies on the other side of the world, there are more than 100 exchange-traded stock funds in either a few emerging markets or a broad array of them, according to ETF Database.

The biggest is the $69 billion Vanguard FTSE Emerging Markets ETF, followed by BlackRock’s iShares Core MSCIEmerging Markets ETF and iShares MSCI Emerging Markets ETF, each with $40 billion to $45 billion under management. From there it’s a long way down to the next biggest funds, which manage about $5 billion each. So far in 2018, the top three have each gained about 5 percent to 5.5 percent in value, beating the 4.1 percent gain of the SPDR S&P 500 ETF.

The main risk, for now, seems to come from the White House, in the form of lingering uncertainty over whether President Trump will seek to renegotiate trade deals in a way that curtails growth, Moore said. That’s especially true because technology companies that drive the MSCI EM Index, like Samsung, are themselves driven by global trade, she said.

“Even if it doesn’t have a major impact in the near term, it would have a very large impact on sentiment,” she said.

Source: Investment Cnbc
How Trump can crush the emerging markets stock rally in 2018

Comments are closed.