EPSTEIN
page 9 / 451 . OCR, unverified
BRICs with the partial exception of Brazil. The pattern appears set to continue
for the first part of 2014 but could shift if both China and the oil price finally
break down, which should give dedicated investors the opportunity to
generate some longer lasting alpha within the asset class.
Ifigure 8: Net foreign inflows (USD millions)
lotha
Endooesia
Korea
PIXIinolnto
Taiwan
Thailand
ASEAN Aare ex-Japan
Japan
Lad 1 week
315
-32
-611
-210
-268
-484
12.924
YID
17,252
-1,397
6,047
808
7,069
-4,338
-4,925
25,442
124,175
2012
24,574
1,707
15,059
2,548
4,916
2,504
6,759
51,317
27,733
2011
-564
2,950
-8,584
1,329
-9,488
-167
4,112
-14,523
-323
2010
29.338
2,390
19,800
1,224
9.241
2,687
6.301
64.680
22,926
2009
17,644
1,383
24.659
420
14.752
1,136
2,938
5.993
-6.513
2008
12,900
1,732
-36,641
-1.135
-14,719
-4,798
-4,191
48.451
-66.817
2007
18,558
3,598
-29,269
1,354
2,073
1,548
6,500
-2,138
32,759
2006
8.366
1,942
-12.659
720
17,424
2.067
4,730
17.852
68,885
21108
10,905
-1,735
-3,561
354
22,212
2,949
1,568
31.123
113,338
2004
8,642
2,126
10,134
278
9,865
103
2,607
30,647
95,603
ill Correa K Mt II NINITOR 2013.
San Dana* ant Noomberg Arent* LP
Country weightings unchanged ... bard on governance, oil and China view
We discuss the outlook for the individual markets at greater length, later in the
report, but our country weightings for GEM remain unchanged and are still
driven by the underweight positions which we have found much easier to
determine, whilst we continue to find it very difficult to identify compelling
overweights.
Underweight
•
Chine; Whilst China appears cheap in aggregate, this is largely due to
the dominant financials sector, where investors are discounting major
book value impairments from NPLs; Materials stocks also generally
have very low valuations whilst Healthcare and Consumer Staples
stocks are among the more expensive in the asset class. MSCI China
has outperformed our expectations over 2013 and sentiment appears
somewhat elevated, which if the past four years is any guide, suggests
Deutsche Bank AG/London
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December 2013
GEM Equity Strategy Outlook 2014
[Figure 20: EM vs DM non-financials Leverage (%)
Figure 21: EM vs DM non-financials- Asset turnover (%)
fl c rem Fin/noels Aatla£gWy
206
I PS
ISO
I PS
2003
01/ Non Firimitas 444414164.4, (043)
Y36
130
1, 20
IS
—a 00
2(04
2036
2026
2007
2001
2000
2010
2011
2012
2013
Sant Dei ce /3" 491/40TiNV Rnse. lP
4,
EM Non Franci$4 SoleciAmots
110, Fng15 Sakes144son
OP
117
Of
2003
2034
2005
21)34
2037
2036
21:011
2010
2011
2012
2013
Sown Ottecim -*
Scot
Rune LP
4) EM consumer-related sectors have relatively positive margin performance.
Figure 22: EM vs DM net margins (%) - Consumer
Discretionary
—asa EM-Consumer Discretkonori --44.80
DM - Consumer 863Crebanagy
""h 14,0 0(%)
IO .
T1
:
0;
1I
o'
San* Ammo% Sot Bkomen Corm LP
Figure 23: EM vs DM net margins (%) - Consumer
Staples
P•ISCI DA • Canurnot Sts4444
MA • Commit 8146144
Net Margin 1%)
1
—
—
g
S
k
s
s
s
t
i
S
S
S
SNOW 0•100.1 a** Sone;
00o6.44 LP
Regulated sectors have fared bad€y in both EM and DM, but worse in EM;
this is especially so in Utilities as governments have reduced returns to capital
to help offset the impact of low growth on living standards.
Figure 24. EM vs DM net margins (%)- Utilities
MN Maw (9.;
M SC1 EN. Ut4Mes
MSG ON. Mien
-r
4
211
k
i
k
k
1 1 1 1
Sam,' Ono-la Ant 814Cmisg SOW LP
Deutsche Bank AG/London
'Figure 25: EM vs DM net margins (%) - Telco
NO
(%)
—mSCI DM. Telecocrenuncaticn Seems
—NISEI Em. TeleCOmfrmr14•030 811.0606
Son Ora*
Gait So:min Minn LP
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II December 2013
GEM Equity Strategy Outlook 2014
6) IT and industrials have moved in favour of DM which reflects favourable
secular trends, most notably outsourcing from DM to EM companies and the
growing importance of DM Intellectual capital.
'Figure 26: EM vs DM net margins (?'s)- Industrials
1.15C1
Indul/mib
1•84 maw 1M
4-
115C1 DM IndusUs
f
t-
1 1
Sant Daces Bank Monty nn
LP
Figure 27: EM vs DM net margins (%) - Information
(Technology
Nei margin O41
-
-
a
alommeon Technakgy
-1192
DM • 11110110036 TOON1010gy
S.
S
:e-
San' Oars eBan. Ikombn
1P
7) EMs have fared especially badly in energy and materials primarily due to the