Emerging Stocks Rise on Prospect of ‘Super-Goldilocks’ Economy
By Michael Patterson and Kevin Hamlin
Nov. 5 (Bloomberg) -- Emerging-market stocks climbed for a seventh day as Citigroup Inc. predicted a “super-Goldilocks” economy will send shares to record highs next year and investor Mark Mobius said the rally faces no risks any time soon.
The MSCI Emerging Markets Index will jump 30 percent to an all-time high in 2011, Citigroup strategist Geoffrey Dennis wrote in a Nov. 4 report. The Federal Reserve’s bond-purchase plan will fuel a global stock rally and emerging markets are the “bright spot,” Mobius, who oversees about $34 billion at Templeton Asset Management Ltd., said in an interview.
“The weak, but not recessionary, macro situation in developed countries is a ‘super-Goldilocks’ environment,” Dennis, Citigroup’s New York-based emerging markets strategist, wrote in the report. “The underlying conditions that have driven markets higher over the past few months remain in place and are likely to do so for several more quarters.”
The outlooks echo bullish forecasts from Traxis Partners LLC’s Barton Biggs and Goldman Sachs Asset Management’s Jim O’Neill as surging economic growth prompts investors to pour money into developing nations at a record pace.
The extra yield investors demand to own emerging-market bonds over U.S. Treasuries dropped 3 basis points to 233, according to JPMorgan Chase & Co. data.
“This movement is mandated by the Federal Reserve and quantitative easing. The liquidity flood is just out there chasing yield,” said Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal in New York.
The benchmark MSCI emerging-markets index increased 0.4 percent to 1,155.94 at 5:27 p.m. in New York, bringing its gain this week to 4.5 percent. The 21-country benchmark gauge has advanced 17 percent this year, extending a record 75 percent rally in 2009.
‘Far From Bubble’
The index is valued at 13 times analysts’ 12-month earnings estimates and 2.2 times net assets, according to data compiled by Bloomberg. That compares with ratios of 14.9 and 2.9 when the MSCI gauge peaked in October 2007, the data show.
Emerging-market stock valuations are “far from bubble territory,” Dennis said. He predicted the MSCI gauge will climb to 1,500, or 12 percent higher than its all-time high on Oct. 29, 2007. That would leave the gauge valued at about 13 times estimated earnings and 2.8 times net assets, or book value, Dennis wrote.
The rally may end when investors anticipate a tightening of monetary policy by the Fed in 2012 with near-term risks including a “double-dip” in the U.S. economy, “aggressive” interest-rate increases by China and a rebound in the dollar, Dennis said.
‘Tata Motors, Gerdau’
China’s benchmark Shanghai Stock Exchange Composite Index rose 1.4 percent, completing a sixth weekly advance. Jiangxi Copper Co. and Zijin Mining Group Co., the nation’s biggest producers of the metals, advanced at least 4 percent in China.
India’s Bombay Stock Exchange Sensitive Index climbed to a record close for a second straight day in a shortened trading session, as investors increased their holdings amid expectations the nation’s economic growth will boost corporate earnings.
Tata Motors Ltd., the best performer on the benchmark index this year, gained 0.9 percent to 1,244.95 rupees, its highest close since at least January 1991.
Brazil’s Bovespa stock index fell from a two-year high, paring the biggest weekly gain in a month, after steelmaker Gerdau SA reported a drop in earnings and fell 3.6 percent.
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