| Loving them or leaving them |
| Country/region |
Total |
Start |
Stop |
Increase |
Decrease |
| Russia |
18 |
7 |
0 |
5 |
0 |
| Egypt |
13 |
6 |
0 |
1 |
0 |
| Sub-Saharan Africa |
7 |
3 |
0 |
1 |
0 |
| Brazil |
7 |
2 |
0 |
6 |
3 |
| Romania |
7 |
3 |
0 |
1 |
0 |
| China |
6 |
1 |
0 |
5 |
1 |
| Bulgaria |
6 |
3 |
0 |
0 |
0 |
| India |
5 |
1 |
0 |
4 |
1 |
| Chile |
5 |
1 |
0 |
3 |
0 |
| Israel |
5 |
2 |
0 |
1 |
0 |
| Hungary |
4 |
1 |
0 |
2 |
0 |
| Argentina |
4 |
1 |
0 |
2 |
0 |
| Peru |
4 |
1 |
0 |
2 |
0 |
| Slovenia |
3 |
2 |
0 |
0 |
1 |
| Poland |
2 |
1 |
1 |
2 |
0 |
| Ukraine |
2 |
1 |
0 |
0 |
0 |
| Colombia |
2 |
1 |
0 |
0 |
0 |
| Mexico |
2 |
1 |
0 |
3 |
3 |
| Taiwan |
2 |
0 |
0 |
5 |
3 |
| Lebanon |
2 |
1 |
0 |
0 |
0 |
| Indonesia |
2 |
0 |
0 |
2 |
0 |
| Morocco |
2 |
1 |
0 |
0 |
0 |
| Hong Kong |
1 |
0 |
0 |
3 |
2 |
| Czech Republic |
-1 |
0 |
1 |
1 |
0 |
| Venezuela |
-1 |
0 |
1 |
1 |
0 |
| South Africa |
-1 |
1 |
1 |
2 |
3 |
| South Korea |
-2 |
0 |
1 |
5 |
5 |
| Turkey |
-2 |
1 |
2 |
1 |
1 |
| Singapore |
-3 |
0 |
1 |
0 |
1 |
| Thailand |
-3 |
0 |
1 |
6 |
7 |
| Philippines |
-4 |
0 |
0 |
1 |
5 |
Despite disappointing emerging market performance relative to the US and Europe over the last three years, investors are generally confident about the rest of the year. Euromoney's survey of 33 equity investors, many of whom run dedicated emerging market funds, asked them where they intended to start, stop, increase and decrease investment in the next six months. An overall ranking of each country (see table) was established by subtracting the number planning to decrease from the number of increases and doubling the scores for stops and starts. Predictably, investors found Russia and Brazil attractive, while concern about the property markets of Thailand, Korea, Malaysia and the Philippines dampened enthusiasm for Asia. Egypt and sub-Saharan Africa were popular candidates for new investment.
Most investors maintained that risk in emerging markets is compensated for by their prices. Only one among the 33 polled was dissatisfied with recent emerging market performance and planned to decrease overall exposure. "I'm aware of the attractions of emerging markets," he said, "but they're good maybe one in four years. The rest of the time you're ultimately better off with the S&P 500 or the FTSE."
Russia emerged as the clear favourite. Promising political reforms, lower rouble interest rates and attractive valuations led one investor to predict that Russia would do 20% better this year than any Asian market.
But there was also widespread concern over Russia's volatility and frustration about market access. "You can't always get what you want through GDRS," said one investor. Investors were also critical of accounting, custody and share registration practices. "We don't like Russia," said one investor. "It's overblown, overhyped. It's a good long-term demographic story with a big GDP, but the market looks as if it has jumped ahead of itself."
Most investors are optimistic about Russia's long-term outlook. "They have a highly educated workforce and a European-type culture, as well as a low cost base," said one.
Investors were generally bullish on Latin America. They cite good growth prospects and controlled inflation after a rocky 1996. Brazil was the favourite, described as "a successful privatization market" and "a fantastic long-term story". Investors were attracted by attractive valuations in utilities, telecommunications and mining.
Several investors planned to reduce weightings in Brazil after a strong run, and still more were wary of excessive foreign interest. One fund manager said: "There is a big performance in Latin America generally now, and Brazil is the darling, but everybody's already bought."
Egypt's second-place ranking sprang from a typical perception of it as "a very interesting new opportunity". Bullishness was fuelled by progress towards privatization and better regulation, new gdr issues and upcoming inclusion in the IFC index.
Sub-Saharan Africa is at last attracting attention, as investors venture into Kenya, Tanzania, Uganda and Zimbabwe.
Responding to the view that these markets were too small, one investor replied: "All emerging markets have to start somewhere. The markets are small but growing. Zimbabwe is a top performer, and market capitalization has risen substantially."
Overall scores for Thailand, Korea and the Philippines were among the lowest, but there is a fair amount of divided opinion. Those that insist that these markets have hit bottom after last year's Thai banking crisis are convinced it is time to start buying again. Others pointed to continuing structural difficulties.
Most investors accept political instability in emerging markets. Turkey seems an exception. Those polled liked its companies but neither this nor privatization successes seem able to compensate for political and economic volatility. "They're totally unable to control inflation," said one fund manager. "There's a huge current account deficit and trade deficit."
Kara Peters