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Emerging Markets

February 2012

  • Emerging markets outperform their developed-market peers.
  • Indian market starts to rebound from a disappointing 2011.
  • Unemployment in Brazil hits an all-time low.

Having suffered some of the worst losses as markets dipped last year, emerging markets enjoyed some of the biggest gains during the January rebound. The MSCI Emerging Markets Index shot 11% higher in January, outpacing developed markets by a significant margin.

Among the major markets, the gains were led by India. In a bid to shore up interest in its equity market – one of the world’s worst performers last year – Indian policymakers decided to permit qualified foreign investors to invest directly; they had previously been restricted to investing through mutual funds and derivatives. In addition, India’s stubbornly high inflation rate dipped to its lowest level since 2009, which allowed the Reserve Bank of India to cut banks’ reserve ratios to inject liquidity into the financial system.

Economic data from Brazil was upbeat , with unemployment in Latin America’s largest economy plunging to a record low of just 4.7% in December. Despite this apparent economic vigour, a dovish statement from the central bank indicated that the benchmark Selic interest rate could fall into single digits this year. Since August, the central bank has cut interest rates four times to 10.5%. The Brazilian market rose by 15% on the month.

It was some indication of investors’ renewed appetite for risk that the Hungarian market was one of January’s strongest performers. Yields on Hungarian bonds soared to 11% and the forint plunged to its lowest levels against the euro as the country teetered on the brink of a currency crisis; the government signalled that it would negotiate a standby loan with the International Monetary Fund. Despite that, however, the Hungarian market recorded an impressive 22% return on the month.

The information contained in this document has been derived from sources which we consider to be reasonable and appropriate. It may also include our views and expectations, which cannot be taken as fact. Investment markets can change rapidly and the views expressed should not be taken as statements of fact, nor relied upon when making investment decisions.

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