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Will the monetary cycle derail the emerging equities outperformance?
May 24th, 2010
This material is solely for the attention of "professional” investors (see more details and definitions at the back).
Will the monetary cycle derail GEM growth? - 19/04/23page 2
Abundant flow of funds on the EM asset class
Will the monetary cycle derail GEM growth? - 19/04/23page 3
Stellar relative performance
Relative performance of MSCI Emerging Markets vs. MSCI World
Past performance is not a guarantee or a reliable indicator for current or future performance and returns
Source: Datastream, Amundi - 01/01/1988 – 17/05/2010 - USD
100
150
200
250
300
350
400
01
/01
/19
88
01
/01
/19
89
01
/01
/19
90
01
/01
/19
91
01
/01
/19
92
01
/01
/19
93
01
/01
/19
94
01
/01
/19
95
01
/01
/19
96
01
/01
/19
97
01
/01
/19
98
01
/01
/19
99
01
/01
/20
00
01
/01
/20
01
01
/01
/20
02
01
/01
/20
03
01
/01
/20
04
01
/01
/20
05
01
/01
/20
06
01
/01
/20
07
01
/01
/20
08
01
/01
/20
09
01
/01
/20
10
Will the monetary cycle derail GEM growth? - 19/04/23page 4
0
5
10
15
20
25
17/0
5/19
95
17/1
1/19
95
17/0
5/19
96
17/1
1/19
96
17/0
5/19
97
17/1
1/19
97
17/0
5/19
98
17/1
1/19
98
17/0
5/19
99
17/1
1/19
99
17/0
5/20
00
17/1
1/20
00
17/0
5/20
01
17/1
1/20
01
17/0
5/20
02
17/1
1/20
02
17/0
5/20
03
17/1
1/20
03
17/0
5/20
04
17/1
1/20
04
17/0
5/20
05
17/1
1/20
05
17/0
5/20
06
17/1
1/20
06
17/0
5/20
07
17/1
1/20
07
17/0
5/20
08
17/1
1/20
08
17/0
5/20
09
17/1
1/20
09
17/0
5/20
10
avg EM avg DEV
Synchronized monetary policy this time around
EM:: Taiwan, Russia, Korea, Indonesia, India, China, Brazil DEV:US, EEC, Japan
Central bank rates (%)
Will the monetary cycle derail GEM growth? - 19/04/23page 5
Monetary policy: tightening in EM vs on hold in DM
Will the monetary cycle derail GEM growth? - 19/04/23page 6
Higher GDP growth differential to accelerate
Growth differential between Emerging and developed countries
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source : EIU, MSCI, AmundiGDP (real, %YOY) Average
Source: Datastream, MSCI, EU, Amundi
Will the monetary cycle derail GEM growth? - 19/04/23page 7
Change in real GDP forecasts
Source: JP Morgan, Amundi
Will the monetary cycle derail GEM growth? - 19/04/23page 8
Superior sovereign risk
Emerging economies enjoy strong macroeconomic fundamentals compared with developed countries:
Key economic data YearEmerging Countries Developed Countries
% of GDP
Gross Government Debt 2009 42% 94%
Budget Balance 20092010e
-4.4%-4.0%
-8.2%-8.5%
Gross External Debt 2009 26% 135%
Current Account Balance
20092010e
2.9%1.7%
-1.6%-1.9%
Source: MSCI, EIU, JEDH, Fitch, Amundi
Will the monetary cycle derail GEM growth? - 19/04/23page 9
A twin deficit: a ten years story
Current account (% GDP) + Budget balance (% GDP)
BrazilMexico
China
India
Korea
MalaysiaTaiwan
PolandRussia
Turkey
Israel
South Africa
USA
Japan
Portugal
Greece
Italy
UK
Germany
-25
-20
-15
-10
-5
0
5
10
15
20
25
-15 -10 -5 0 5 10 15
2009
1999
Source: EIU, Amundi
worsening
Will the monetary cycle derail GEM growth? - 19/04/23page 10
Emerging markets’ relatively low leverage
Total of Private and Public Debt (% GDP) - 2009
0
50
100
150
200
250
300
350
Japa
n
Uni
ted
Kin
gdom
Uni
ted
Sta
tes
Spa
in
Por
tuga
l
Gre
ece
Fra
nce
Ger
man
y
Tai
wan
Chi
na
Kor
ea
Hun
gary
Tha
iland
Indi
a
Mor
occo
Bra
zil
Sou
th A
fric
a
Egy
pt
Pol
and
Cze
ch R
epub
lic
Chi
le
Phi
lippi
nes
Tur
key
Arg
entin
a
Col
ombi
a
Mex
ico
Rus
sia
Indo
nesi
a
Per
u
General government debt Private creditsource : Fitch
Will the monetary cycle derail GEM growth? - 19/04/23page 11
A change in risk perception
CDS 10 y
0
100
200
300
400
500
600
04/0
5/07
04/0
6/07
04/0
7/07
04/0
8/07
04/0
9/07
04/1
0/07
04/1
1/07
04/1
2/07
04/0
1/08
04/0
2/08
04/0
3/08
04/0
4/08
04/0
5/08
04/0
6/08
04/0
7/08
04/0
8/08
04/0
9/08
04/1
0/08
04/1
1/08
04/1
2/08
04/0
1/09
04/0
2/09
04/0
3/09
04/0
4/09
04/0
5/09
04/0
6/09
04/0
7/09
04/0
8/09
04/0
9/09
04/1
0/09
04/1
1/09
04/1
2/09
04/0
1/10
04/0
2/10
04/0
3/10
04/0
4/10
04/0
5/10
RUSSIA CHINA BRAZIL GREECE PORTUGAL SPAIN
EM
DV
1200
1000
800
Source: Datastream, AmundiDonnées au 5 mai 2010
CDS 10y
Will the monetary cycle derail GEM growth? - 19/04/23page 12
On the road to premium valuation
PE next 12 months
5
7
9
11
13
15
17
19
21
23
25
Jan-
90
Jul-9
0
Jan-
91
Jul-9
1
Jan-
92
Jul-9
2
Jan-
93
Jul-9
3
Jan-
94
Jul-9
4
Jan-
95
Jul-9
5
Jan-
96
Jul-9
6
Jan-
97
Jul-9
7
Jan-
98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
MSCI Emerging Markets MSCI World Source : Ibes
Will the monetary cycle derail GEM growth? - 19/04/23page 14
EM currencies: appreciation to further
Source : Datastream, Amundi
Global Real Effective Emerging Markets Exchange Rates (*)
70
75
80
85
90
95
100
105
110
Sep
93
Mar
94
Sep
94
Mar
95
Sep
95
Mar
96
Sep
96
Mar
97
Sep
97
Mar
98
Sep
98
Mar
99
Sep
99
Mar
00
Sep
00
Mar
01
Sep
01
Mar
02
Sep
02
Mar
03
Sep
03
Mar
04
Sep
04
Mar
05
Sep
05
Mar
06
Sep
06
Mar
07
Sep
07
Mar
08
Sep
08
Mar
09
Sep
09
Mar
10
REER vs Trade weighted $
Asian crisis
'(*) weighted average REER of Korea, Brazil, Mexico, China, South Africa, India, Malaysia, Israel and Russia.
Will the monetary cycle derail GEM growth? - 19/04/23page 15
Is EM inflation really a threat ?
Differential between Emerging and Developed Countries
0
1
2
3
4
5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
source : EIU, MSCI, AmundiCPI (%yoy - average) Average
Will the monetary cycle derail GEM growth? - 19/04/23page 17
Conclusion
No decoupling in a more and more globalized world
Emerging Countries will suffer if and when developed economies collapse
– Global imbalances still present
– Impact of “Greek turmoil” (and its consequences) on European growth
Nevertheless we remain strongly convinced on GEM equities on a relative basis
Continuation of global economic recovery should force many investors defensively positioned to reallocate assets– Strong macroeconomic conditions and higher growth compared with developed countries:
– Relative risk perception of Emerging markets should continue to improve
– Current Emerging market discount not justified (but US equity market not cheap)
Will the monetary cycle derail GEM growth? - 19/04/23page 18
Disclaimer
This material is provided for information purposes only and does not constitute a recommendation, a solicitation, an offer, an advice or an invitation to purchase or sell any fund, SICAV, sub-fund, (“the Funds”) described herein and should in no case be interpreted as such.This material, which is not a contract, is based on sources that Amundi considers to be reliable. Data, opinions andestimates may be changed without notice.Amundi accepts no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. Amundi can in no way be held responsible for any decision or investment made on the basis of information contained in this material.The information contained in this document is disclosed to you on a confidential basis and shall not be copied, reproduced, modified, translated or distributed without the prior written approval of Amundi, to any third person or entity in any country or jurisdiction which would subject Amundi or any of “the Funds”, to any registrationrequirements within these jurisdictions or where it might be considered as unlawful. Accordingly, this material is for distribution solely in jurisdictions where permitted and to persons who may receive it without breaching applicable legal or regulatory requirements.Not all funds, or sub-funds will be necessarily be registered or authorized in all jurisdictions or be available to allinvestors.Investment involves risk. Past performances and simulations based on these, do not guarantee future results, nor are they reliable indicators of futures performances.The value of an investment in the Funds, in any security or financial product may fluctuate according to market conditions and cause the value of an investment to go up or down. As a result, you may lose, as the case may be, the amount originally invested.All investors should seek the advice of their legal and/or tax counsel or their financial advisor prior to any investment decision in order to determine its suitability.It is your responsibility to read the legal documents in force in particular the current French prospectus for each fund, as approved by the AMF, and each investment should be made on the basis of such prospectus, a copy of which can be obtained upon request free of charge at the registered office of the management company.The information contained in this document is deemed accurate as at 13/01/2010.
Will the monetary cycle derail GEM growth? - 19/04/23page 19
Amundi, French joint stock company (“Société Anonyme”) with a registered capital of € 578 002 350 and approved by the French Securities Regulator (Autorité des Marchés Financiers-AMF) under number GP 04000036 as a portfolio management company, 90 boulevard Pasteur -75015 Paris- France – 437 574 452 RCS Paris.
This material is solely for the attention of institutional, professional, qualified or sophisticated investors and distributors. It is not to be distributed to the general public, private customers or retail investors in any jurisdiction whatsoever nor to “US Persons”.
Moreover, any such investor should be, in the European Union, a “Professional” investor as defined in Directive 2004/39/EC dated 21 April 2004 on markets in financial instruments (“MIFID”) or as the case may be in each local regulations and, as far as the offering in Switzerland is concerned, a “Qualified Investor” within the meaning of the provisions of the Swiss Collective Investment Schemes Ordinance of 23 June 2006 (CISA), the Swiss Collective Investment Schemes Ordinance of 22 November 2006 (CISO) and the FINMA’s Circular 08/8 on Public Offering within the meaning of the legislation on Collective Investment Schemes of 20 November 2008. In no event may this material be distributed in the European Union to non “Professional” investors as defined in the MIFID or in each local regulation, or in Switzerland to investors who do not comply with the definition of “qualified investors” as defined in the applicable legislation and regulation.
DisclaimerThis document contains information about Amundi Funds Emerging World, (the “Sub-Fund”), a sub-fund of Amundi Funds (the“Sicav”), an undertaking for collective investment in transferable securities existing under Part I of the Luxembourg law of 20 December 2002, organised as a société d’investissement à capital variable and registered with the Luxembourg Trade and Companies Register under number B68.806. The SICAV has its registered office at 5, allée Scheffer, l-2520 Luxembourg.Amundi Funds has been authorised for public sale by the Commission de Surveillance du Secteur Financier in Luxembourg.Not all sub-funds of the SICAV (the "Sub-Funds") will necessarily be registered or authorized for sale in all jurisdictions or be available to all investors.Subscriptions in the Sub-Funds will only be accepted on the basis of the SICAV’s latest complete and simplified prospectuses, its latest annual and semi-annual reports and its articles of incorporation that may be obtained, free of charge, at the registered office of the SICAV or respectively at that of the representative agent duly authorized and agreed by the relevant authority of each relevant concerned jurisdiction.Consideration should be given to whether the risks attached to an investment in the Sub-Funds are suitable for prospective investors who should ensure that they fully understand the contents of this document. A professional advisor should be consulted to determine whether an investment in the Sub-Funds is suitable.The value of, and any income from, an investment in the Sub-Funds can decrease as well as increase. The Sub-Funds have no guaranteed performance. Further, past performance is not a guarantee or a reliable indicator for current or future performance and returns. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units.This document does not constitute an offer to buy nor a solicitation to sell in any country where it might be considered asunlawful, nor does it constitute public advertising or investment advice.The information contained in this document is deemed accurate as at 02/03/2010.