May 2012
- Emerging markets decline for a second consecutive month.
- Encouraging data from China supports the market.
- Latin America lags.
Despite a strong start to the year, a degree of caution returned to emerging markets during April. The MSCI Emerging Markets index fell 0.9% (in local currency terms) as some patchy economic data from the US and concerns over Spain’s deteriorating economic situation drove share prices lower.
Asian markets were the strongest performers in April, falling by just 0.2%. China was one of the best markets, rising 3.5%, as fears that the economy was heading for a sharp slowdown eased; Chinese manufacturing activity expanded for the fifth consecutive month and earnings results were viewed positively.
Political and economic risks in the eurozone weighed on Eastern European markets during April, with the region falling 1.5%. Thanks to its financial integration with the eurozone (Italian, Austrian and French banks are among the region’s biggest lenders), Eastern Europe is particularly sensitive to any signs of turbulence in the single currency zone. Concerns over the French presidential election and the collapse of the Dutch government, combined with a sharp rise in the yields on Spanish bonds, sent share prices across Eastern Europe lower.
Latin America ended the month as the weakest emerging market region, falling 2%. Not surprisingly, Argentina was one of the region’s worst performers. Cristina Fernández, the country’s president, summarily renationalised YPF, the former state-run oil company, without consulting (or compensating) majority shareholder Repsol. The surprise move revived unpleasant memories of the country’s Peronist past and sent the local market index, the Merval, some 13% lower on the month. Mexico held up rather better, ending the period broadly flat; this was thanks, in large part, to strong returns from index heavyweight America Movil, which reported a 37% jump in first-quarter net profit.
