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Home | RARE Infrastructure Emerging Market Fund Market Commentary – March 2010

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RARE Infrastructure Emerging Market Fund Market Commentary – March 2010

April 25 2010

The global markets ended the month on a positive note for the first time this year. However, the EMs again under performed their developed peers albeit at a more muted pace (MSCI EM +6.2% vs MSCI World +6.5% in local terms). Within the EMs all markets RARE are exposed to were up, some very strongly (Thailand +9.2%, Indonesia +9.0%, Russia +8.8%, India +6.2%, Brazil +5.8%, Mexico +5.2%, Malaysia +3.9%, Hong Kong +3.1%, Shenzhen +3.3% & Shanghai +1.9%).

Despite on-going concerns over the developed European sovereign balance sheets, we believe the market became more comfortable with our February view that they wouldn’t default and relief would be found locally – supported by successful bond offerings in Greece in late March. In our view this, together with better than expected macro stats from the developed world, were the largest drivers of the stronger markets in March. We believe EMs will continue to track their developed peers over the short to medium term, as risk appetite again dictates investment decisions and not stand alone EM fundamentals. As such we may see on-going EM market volatility.

From a longer term fundamental stand point, the news flow for the EMs and the infrastructure stories within the EMs in March was positive with

  • A reduction in the severity of the “currency manipulation” comments coming from Washington
  • No major concerns regarding rising inflation as yet – postponing need for monetary tightening
  • Strong FY results – many of the stocks beat expectations and announced bullish 2010 targets
  • A number of new offerings were announced and positively received by the market
  • Governments reaffirmed their infrastructure programs – Mexico to tender USD50bn in projects in 2010, Brazil announced dates for major capacity auctions

On a low note, Chile suffered a devastating earthquake which we believe will take them some time to recover from. However, we would positively note the strong domestic and global response to the disaster and that for the infrastructure investors with Chilean assets, insurance is expected to cover much of the damage.

We remain positive on EMs with their strong fundamentals and attractive growth profile and would use any weakness associated with developed market volatility to buy real value (EM infrastructure).