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The Accumulator: look at emerging markets go!
Few would have predicted at the start of 2016 that emerging markets, led by Brazil and Russia, would be topping the performance tables.
by Daniel Grote on Mar 18, 2016 at 12:56
Who would have predicted at the beginning of the year that emerging markets, led by Brazil and Russia, would be topping the performance charts, with a slump in the dollar rattling investors?
Yet that is exactly what has happened. A year that began with the same old worries plaguing markets, and the same victims falling into the red, quickly snapped direction in January, in a turnaround that has been building momentum ever since.
As we entered 2016, fears over China's slowdown reignited, with emerging markets and commodities again bearing the brunt. Stock markets in the developing world plummeted to their lowest levels since the financial crisis while the picture for commodities was even worse, with miners falling to levels not seen for more than 12 years.
But as the market turmoil entered its next leg, the scale of the brutal sell-off obscured a big change in sentiment. Banks and developed markets were hit hardest in February's malaise, with the commodities sector having begun to lift itself from lows.
Emerging markets did not escape February's downturn, but they weathered it better than the US, UK, Europe and Japan, and since then have been leading the recovery in world markets.
Brazil tensions inflamed
No more so than Brazil, which this week notched up yet more gains, powered by rallies in both its stock market and currency, as the extraordinary political saga engulfing president Dilma Rousseff (pictured) took another twist.
Last week we highlighted the country's explosive rally, powered largely by the belief that Rousseff, who is largely blamed for the country's economic woes, could see her second presidential term come to an abrupt end.
She had come under pressure due to money-laundering charges filed against former president Luiz Inacio Lula da Silva, a fellow member of the leftist Workers' Party.
This week, tensions were inflamed further when Rousseff appointed da Silva, known as 'Lula' to her cabinet, a move interpreted by critics as a plot to protect him from prosecution. Sergio Moro, the judge presiding over the case, which centres on corruption at state-run oil company Petrobas (PETR4.SA), responded by releasing recordings of tapped phonecalls between Rousseff and Lula, seized upon by critics of the government as evidence of collusion.
Brazil's stock market rocketed 7% on the news, and as our exclusive Accumulator data table shows, investors in the country, which was last year's worst performer by a considerable margin, are now enjoying a 30.1% gain in 2016 in pound terms.
Russia also enjoyed a further bounce this week, up 4.8%, and with a 18.7% gain since the turn of the year in pound terms, is the second-best performing major market in 2016.
Investors welcomed a calming of geopolitical tensions as president Vladimir Putin (pictured) announced the withdrawal of the country's military forces from Syria, while a stabilisation of the oil price around the $40 mark also provided a boost.
Germany also recovered some ground, up 4.4% over the week to yesterday as the scale of the European Central Bank's stimulus measures sank in.
Closer to home, the FTSE 100 notched up a creditable performance versus other major markets, helped by the rally in commodity stocks that make up a big chunk of the index. Up 2.9% over the five days to yesterday, the index is now close to reaching the level at which it began the year, and as our table shows, with dividends included, FTSE 100 investors have already wiped out their 2016 losses.
Crucial to the commodities recovery this week was the slide in the dollar, down 1.3% against the pound over the week as the US Federal Reserve calmed fears over the pace of further interest rate rises. After keeping rates on hold, the Fed estimated it would only raise rates twice this year, having earlier suggested four hikes were on the cards.
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- The Accumulator: emerging markets fight back
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by Daniel Grote on Sep 23, 2016 at 17:01