本文发表在 rolia.net 枫下论坛Oct 9th 2008
Firms in developing countries struggle to escape their roots
STOCKMARKET bubbles often take a genuine improvement in economic or corporate performance, and then vastly overestimate its effect. Equity investors in emerging markets must wonder if they have once again been suckered into giving developing countries the benefit of the doubt. Prices have fallen by almost half this year. On October 6th emerging-market shares recorded their biggest one-day fall in at least 20 years, prompting all-too-familiar scenes of chaos followed by enforced inactivity, as trading at some bourses was suspended.
For bullish investors one attraction of emerging economies was the fact that they had started with better public finances and balance-of-payments positions than in previous cycles. How resilient those positions are is now being tested, as plunging commodity prices sap export earnings and capital flows dry up. Even sound economies may still be dragged down. As Stephen Jen, an economist at Morgan Stanley, points out, in a crisis “bad things happen to good countries”.
Equity investors’ enthusiasm also reflected a more novel idea—that the quality of emerging-market companies had improved. Rather than an old guard of conglomerates with hazy ownership and accounting, the thesis ran, there was a new generation of large, well run, globally competitive “mega-cap” firms. Indeed, these might even be less risky than their homelands’ governments. And just as the Dutch economy has little bearing on Royal Dutch Shell’s share price, or the British economy on Vodafone’s, the hope was that these firms might eventually transcend their domestic markets.
Some of the claims were over the top. In April 2007 Gazprom, an energy firm controlled by the Kremlin, made a Dr-Evil-style prediction that its market value would reach $1 trillion (ten times today’s level). But there was substance too, exemplified by the wave of credible bids for Western companies before the credit crunch, such as the multibillion approach by Vale, a Brazilian miner, for Xstrata.
EPA Just like the old days
Why then, have most emerging stockmarkets fallen by more than Western ones, particularly in the past month? There are some plausible fundamental explanations. They may have been more overvalued to start with. Even after their tumble, the aggregate price-earnings ratio is in line with developed markets, rather than at the discount that has been the historical norm. The composition of most indices also makes them vulnerable. Almost two-fifths of the earnings of the FTSE emerging-markets benchmark are from highly cyclical energy or basic-materials companies—twice the share in developed markets—so earnings forecasts are falling faster than for developed peers. Most indices under-represent mainland China, which has been relatively resilient in recent weeks, on the grounds that it is hard for foreigners to invest there. And the top 20 companies account for just over a quarter of the FTSE emerging-markets index. Although that is a higher proportion than in developed economies, it still leaves a long tail of smaller firms which may be less well run.
As well as quirks of composition and valuation, the harsh reality is that, as in previous crises, investors are not discriminating much. Most “mega-cap” companies have been penalised more heavily than rich-world peers in the same industry. Credit-default swaps, a type of insurance against bankruptcy, suggest that the borrowing costs of big emerging-markets firms have spiked along with those of their home countries’ governments. This is despite the fact that emerging-market industrial companies in aggregate, like their governments, have lower debt levels than their Western equivalents. Shares of emerging-market banks, which with the exception of a few places such as Russia are in reasonable shape, have plunged in sympathy with their Western peers.
There may well have been structural improvements in emerging economies, but just now markets are having none of it. That could present a buying opportunity. But if capital remains scarce for too long, and big companies struggle to refinance their foreign debt, investors’ gut reaction could become a self-fulfilling prophecy.更多精彩文章及讨论，请光临枫下论坛 rolia.net
Firms in developing countries struggle to escape their roots
STOCKMARKET bubbles often take a genuine improvement in economic or corporate performance, and then vastly overestimate its effect. Equity investors in emerging markets must wonder if they have once again been suckered into giving developing countries the benefit of the doubt. Prices have fallen by almost half this year. On October 6th emerging-market shares recorded their biggest one-day fall in at least 20 years, prompting all-too-familiar scenes of chaos followed by enforced inactivity, as trading at some bourses was suspended.
For bullish investors one attraction of emerging economies was the fact that they had started with better public finances and balance-of-payments positions than in previous cycles. How resilient those positions are is now being tested, as plunging commodity prices sap export earnings and capital flows dry up. Even sound economies may still be dragged down. As Stephen Jen, an economist at Morgan Stanley, points out, in a crisis “bad things happen to good countries”.
Equity investors’ enthusiasm also reflected a more novel idea—that the quality of emerging-market companies had improved. Rather than an old guard of conglomerates with hazy ownership and accounting, the thesis ran, there was a new generation of large, well run, globally competitive “mega-cap” firms. Indeed, these might even be less risky than their homelands’ governments. And just as the Dutch economy has little bearing on Royal Dutch Shell’s share price, or the British economy on Vodafone’s, the hope was that these firms might eventually transcend their domestic markets.
Some of the claims were over the top. In April 2007 Gazprom, an energy firm controlled by the Kremlin, made a Dr-Evil-style prediction that its market value would reach $1 trillion (ten times today’s level). But there was substance too, exemplified by the wave of credible bids for Western companies before the credit crunch, such as the multibillion approach by Vale, a Brazilian miner, for Xstrata.
EPA Just like the old days
Why then, have most emerging stockmarkets fallen by more than Western ones, particularly in the past month? There are some plausible fundamental explanations. They may have been more overvalued to start with. Even after their tumble, the aggregate price-earnings ratio is in line with developed markets, rather than at the discount that has been the historical norm. The composition of most indices also makes them vulnerable. Almost two-fifths of the earnings of the FTSE emerging-markets benchmark are from highly cyclical energy or basic-materials companies—twice the share in developed markets—so earnings forecasts are falling faster than for developed peers. Most indices under-represent mainland China, which has been relatively resilient in recent weeks, on the grounds that it is hard for foreigners to invest there. And the top 20 companies account for just over a quarter of the FTSE emerging-markets index. Although that is a higher proportion than in developed economies, it still leaves a long tail of smaller firms which may be less well run.
As well as quirks of composition and valuation, the harsh reality is that, as in previous crises, investors are not discriminating much. Most “mega-cap” companies have been penalised more heavily than rich-world peers in the same industry. Credit-default swaps, a type of insurance against bankruptcy, suggest that the borrowing costs of big emerging-markets firms have spiked along with those of their home countries’ governments. This is despite the fact that emerging-market industrial companies in aggregate, like their governments, have lower debt levels than their Western equivalents. Shares of emerging-market banks, which with the exception of a few places such as Russia are in reasonable shape, have plunged in sympathy with their Western peers.
There may well have been structural improvements in emerging economies, but just now markets are having none of it. That could present a buying opportunity. But if capital remains scarce for too long, and big companies struggle to refinance their foreign debt, investors’ gut reaction could become a self-fulfilling prophecy.更多精彩文章及讨论，请光临枫下论坛 rolia.net