RARE Infrastructure Emerging Market Fund Market Commentary – December 2009
A strong end to the year for the markets with December up across the board and the EMs finishing the year on a 2009 trend, out-performing their developed peers (MSCI EM +4.2% versus MSCI World +3.8% in local terms). No one star EM performer in December with all key markets up (Thailand +6.6%, Indonesia +4.9%, India +3.9%, Mexico +3.8%, Shenzhen +1.3% & Shanghai +2.6%, Brazil +2.3%, Malaysia +1.1% & Hong Kong +0.2%).
In line with the market performance the news flow for December was positive
* The Dubai World situation was resolved with Abu Dhabi coming to the party (as expected) after extracting their pound of flesh
* EM industrial production and retail sales volume indicators continued to pick up sharply
* November trade data showed a turn around and exports look bouyed for a strong 2010 recovery
From a fundamental standpoint we believe the EMs
* Ended 2009 with the worst behind them
* Weathered the storm better than many people anticipated
* Have a lot of fuel (fiscal and monetary policy) left in the tank should we see a double dip at any point
Despite the strong out-performance of the EMs over 2009 we think there is still upside to be realised and that 2010 will be an important year for them to cement their position on the global stage. We are positioning ourselves to take advantage of the opportunities 2010 is expected to present by asking ourselves
* Will the relative losers of 2009 be the winners of 2010 (Mexico bouyed by a US recovery. Is India the next China? Is there a new China bubble on the horizon? Can LatAm keep going?)
* How well will the EM policy makers manage the tightening process?
* Will inflation raise its head?
* How will the government elections play out? (Brazil’s presdiential election will be key)
* How will the developed markets react to a strengthening economy – have they learnt their lessons? and if not what does that mean for EMs?
These questions will influence our portfolio allocation but more broadly for the EMs we believe that
* the themes of 2009 have yet to run their course (consumer demand, low leverage, government stimulus)
* the EM markets continue to offer strong long term fundamentals at attractive valuations
