Opportunities despite weak market climate
Emerging stock markets overall ended 2015 on a dull note with declines in the majority of countries, and December was no exception, say Mona Stenmark and Jan-Olov Olsson at Carnegie Emerging Markets.
China and India fell 4 percent during the month, while Russia, which was one of the stronger markets across the year, ended the period with a fairly sharp decline of over 12 percent in December. Brazil’s market slide was slightly less, down 9 percent in the month. All figures are in SEK. The US Federal Reserve implemented a rate hike in December, which had been anticipated and therefore had no major impact on the markets.
Argentina’s new president, Mauricio Macri, started to push through much-needed reforms such as eliminating export taxes, currency liberalisation and the removal of capital controls. The hope is that Argentina can finally get back on track, but this will be difficult and will take time. The Argentine stock market, Merval, saw a substantial uptick before voting ended, but has since lost momentum. A classic example of buy on rumour, sell on fact.
Carnegie Emerging Markets continued to adjust its positioning in Mexico by completely selling Cemex on further indications during the month that the near future looks troublesome, partly because of the higher US policy rates. After reducing our stake in Banorte in November, the stock experienced a weaker period and we used this opportunity to increase the holding since Mexico’s relatively strong macro economy will benefit the bank.
Axis Bank in India was entirely divested following a previous gradual reduction. The decisive factor now was that the Indian authorities want to tighten bank accounting practices for bad credit, which could lead to higher bad debt losses in private banks. Otherwise, the fund topped up its stakes in holdings that we consider attractive in the long-term, but which fell during the month’s weak market climate. These include Brazilian Qualicorp, Russian Gazprom and Chinese companies Universal Health, China Life and CAR Inc.