Commodities vs emerging mkts – 10 years
250
200
150
% 100
50
0
MSCI Emerging Markets
TR/Jefferies CRB Index
-50
MSCI World
’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09
1 Apr ’00 – 1 Apr ’10. Source: Financial Express Analytics
fiscal stimulus programme
under way that has been
conducted through the
banking system. This has
fuelled some fairly spectacular
rises in property
prices. But how long can
they be sustained and how
long before it gets diffused?
That is hard to say.”
Looking at emerging
markets as a single asset
class, Calvert points out
it has actually underperformed
the developed
world index over the
past six months. On this
basis, he believes overall
valuations are not too
expensive.
’10
“On a price to book
basis we are at around
2.1x which puts us around
halfway between the peak
in October 2007 and the
trough in October 2008.
You would not really
say that is a bubble,”
he remarks.
But that does not mean
Calvert is not concerned
about the situation.
“The dilemma we
have is that from a top
down perspective, markets
do not appear to be
too expensive. But from a
bottom up perspective, it
is harder to find stocks at
the moment.”
Plain Talk.
l Commodities
INVESTMENT STRATEGIES ASSET CLASS BUBBLES
Fund managers and fund
pickers alike see commodities
as another likely
bubble in developing markets
– Calvert says resource
stocks are clearly in
“frothy territory”.
Chris Beckett, head of
research at Quilter, says
bubbles are usually based
around trends which are
“inherently true”. For example,
the internet bubble
was based on significant
technological and cultural
changes which did materialise,
although investors
reacted by assuming a level
of returns which was unrealistic.
The same goes for
resources, particularly base
metals, as the commodity
story and the urbanisation
of India and China
is undoubtedly happening
and will continue for some
time to come.
But Beckett warns: “We
are looking at how much
capacity is coming in,
commodity by commodity
and how much extra
demand is being generated
by the changes in those
key emerging markets to
see how that shapes up.
I would not describe it
exactly as a bubble but we
are cautious as to where
prices are now.”
“In a normal resource
cycle, as the price starts to
rise it attracts extra capacity
and leads to reduced
demand and people get
more efficient in using a
resource. With previous oil
market shocks, this has
been very evident and,
as the extra capacity and
resource comes through,
the price corrects.
“You are more likely to
get a bubble if investors
react to it by assuming
that the scale of returns,
when a sector attracts a
lot of money, can continue
indefinitely.”
l History lessons
Perhaps an irony of the
tech bubble is that, ten
years on, the internet and
modern telecommunications
have now become
indispensable to investors
in researching and shaping
portfolios. With such
apparent sophistication,
could it not be that inves-
The dilemma
we have is that
from a top down
perspective, markets
do not appear to be
too expensive. But
from a bottom up
perspective, it is
harder to find stocks
at the moment
MAY 2010 [www.portfolio-adviser.com] PORTFOLIO ADVISER
“
”
William Calvert, manager,
Axa Framlington Emerging
Markets Fund
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