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MSCI EM REBOUND +55% IN 33 WKS – MID 34-74% RANGE
1
• 55% rally from the lows in 33 weeks is in line with the 52% average of the 4 previous rebounds (ranging fom34-74%)
• EM has already regained its previous highs; this took 6½y post-1997, 3¼y post-2000, 1½y post-2016, while the 2007 high is yet to be regained, over a decade since the peak
• EM is now 3% above its dollar 1Q peak (EM ex-China is still 8% below; FM 12% below, DM 1% above, US 4% above)
100
120
140
160
180
200
220
240
260
280
300
-60
0
-50
0
-40
0
-30
0
-20
0
-10
0 0
+10
0
+20
0
+30
0
+40
0
+50
0
+60
0
+70
0
+80
0
1998 2001 2008 2016 2020
MSCI EM in $ rebased to 0 at market low, 5 major EM crashes of 33%+
US, EM, DM HAVE ALL REGAINED 1Q $ HIGHS
2
-40
-30
-20
-10
0
10
20
US
(3.6
%)
EM (
2.6
%)
DM
(1
.4%
)
EM e
x-C
hin
a (-
8.0
%)
Fro
nti
er (
-11
.8%
)
EM A
sia
(12
.2%
)
EMEA
(-2
0.3
%)
LatA
m (
-32
.7%
)
EM G
row
th (
17
.9%
)
EM V
alu
e (-
12
.2%
)
MSCI indices, % change vs 1Q 2020 high in $
DRIVEN BY CHINA, TAIWAN AND KOREA IN EM
3
-50
-40
-30
-20
-10
0
10
20
30
Ch
ina
(21
.5%
)
Taiw
an (
15
.1%
)
Ko
rea
(8.0
%)
EM (
2.6
%)
Arg
enti
na
(2.3
%)
Ind
ia (
-3.6
%)
Mal
aysi
a (-
7.6
%)
EM e
x-C
hin
a (-
8.0
%)
Sau
di A
rab
ia (
-8.9
%)
Qat
ar (
-10
.3%
)
Ph
ilip
pin
es (
-10
.8%
)
S A
fric
a (-
12
.0%
)
UA
E (-
17
.4%
)
Ind
on
esia
(-2
2.4
%)
Mex
ico
(-2
3.7
%)
Ch
ile (
-24
.3%
)
Cze
ch (
-25
.3%
)
Egyp
t (-
26
.9%
)
Po
lan
d (
-27
.2%
)
Hu
nga
ry (
-27
.5%
)
Thai
lan
d (
-27
.5%
)
Per
u (
-28
.7%
)
Pak
ista
n (
-31
.2%
)
Ru
ssia
(-3
4.7
%)
Bra
zil (
-37
.8%
)
Turk
ey (
-40
.7%
)
Gre
ece
(-4
3.2
%)
Co
lom
bia
(-4
6.1
%)
MSCI EM country indices, % change vs 1Q 2020 high in $
FRONTIER
4
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Leb
ano
n (
35
.3%
)
Tun
isia
(3
.6%
)
Ban
glad
esh
(1
.8%
)
Vie
tnam
(-1
.3%
)
Lith
uan
ia (
-3.2
%)
Nig
eria
(-5
.4%
)
Slo
ven
ia (
-8.1
%)
Cro
atia
(-1
0.8
%)
Fro
nti
er (
-11
.8%
)
Mo
rocc
o (
-14
.4%
)
Ku
wai
t (-
15
.8%
)
Om
an (
-16
.0%
)
Ro
man
ia (
-16
.0%
)
Serb
ia (
-16
.2%
)
Bah
rain
(-1
7.4
%)
Sri L
anka
(-2
0.2
%)
Ken
ya (
-22
.1%
)
Jord
an (
-22
.7%
)
WA
EMU
(-2
5.3
%)
Kaz
akh
stan
(-2
6.8
%)
Esto
nia
(-2
8.8
%)
Mau
riti
us
(-4
7.4
%)
MSCI FM country indices, % change vs 1Q 2020 high in $
EM SECTORS – FINANCIALS THE BIG LAGGARD
5
-40
-30
-20
-10
0
10
20
30
40
Co
ns
Dis
cr (
34
.8%
)
Hea
lth
care
(2
8.1
%)
IT (
20
.1%
)
Co
mm
un
icat
ion
s (1
9.4
%)
EM (
2.6
%)
Mat
eria
ls (
-0.2
%)
Co
ns
Stap
les
(-6
.4%
)
Ind
ust
rial
s (-
9.5
%)
Uti
litie
s (-
20
.3%
)
Rea
l Est
ate
(-2
1.9
%)
Fin
anci
als
(-2
2.8
%)
Ener
gy (
-31
.3%
)
Roundtrip
MSCI EM sector indices, % change vs 1Q 2020 high in $
COVID - EAST ASIA SUCCESSWATCHING 2ND WAVE
6
0
50
100
150
200
250
300
350
400
Cze
chia
(1
,06
5)
Po
lan
d (
57
7)
Hu
nga
ry (
43
8)
Arg
en
tin
a (2
26
)
Gre
ece
(20
6)
Co
lom
bia
(1
81
)
Ru
ssia
(1
31
)
UA
E (1
21
)
Per
u (
75
)
Ch
ile (
73
)
Qat
ar (
73
)
Bra
zil (
49
)
Mex
ico
(4
0)
Ind
ia (
34
)
Mal
aysi
a (3
2)
Turk
ey (
27
)
S A
fric
a (2
5)
Ph
ilip
pin
es
(17
)
S A
rab
ia (
12
)
Ind
on
esia
(1
2)
Pak
ista
n (
5.7
)
Ko
rea
(2.2
)
Egyp
t (1
.9)
Taiw
an (
0.1
)
Thai
lan
d (
0.1
)
Ch
ina
(0.0
)
latest rolling 7-day cases per million -1m -3m
FISCAL CAPACITY HAS BEEN KEY
7
Bahrain
Croatia
Kazakhstan
Kenya
Kuwait
LithuaniaMorocco
Serbia
Vietnam
Brazil
Chile
China
Colombia
Czech Republic
Egypt
Greece
Hungary
India
Indonesia
Korea
Malaysia
Mexico
Pakistan
Peru
Philippines
Poland
Russia
South AfricaTaiwanThailand
Turkey
UAE
Saudi Arabia
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-2 0 2 4 6 8 10 12 14 16
YtD
ch
g in
10
yea
r lo
cal y
ield
(p
pts
)
10 year local yield (%)
Easier
Harder
Top right - bond yields are high and have risen - fisal stimulus is challenging.
Bottom left - bond yields are low and in some cases falling, fiscal stimulus
easier.
8
Source: MSCI, Bloomberg, Renaissance Capital
BOND FLOWS TURNED +VE IN JUNE; EQUITY IN MID-AUG
• Hard currency debt funds have been seeing inflows since April (9% of AUM), local currency has net inflows since July (4% of AUM) and equity since mid-August (1% of AUM)
• Equity funds have seen a long run outflows, but not in huge size (4.4% of AUM YtD)
• Frontier funds have been seeing outflows all year (18% of AUM from peak)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
Jan
Feb
Mar
Ap
r
May Jun
Jul
Au
g
Sep
Oct
No
v
Dec
EM equity Frontier equity Bond total Bond hard Bond lc
CUMULATIVE FLOWS YtD 2020 (% of AUM)
9
Source: MSCI, Bloomberg, Renaissance Capital
EM EQUITIES HAVE SEEN OUTFLOWS FOR 7 YEARS
• EM Equities have seen net outflows over the last seven years – EM equities is an under-owned asset class vs DM equities and vs EM bonds and DM equities
• Major outflows from Frontier funds as investors question the asset class
100
120
140
160
180
200
220
240
EM Equity
Frontier Equity
EM Bond - hard ccy
EM Bond - local ccy
CUMULATIVE FLOWS 2010-2020 (% of AUM)
EM underperformingDollar weakness
45 YRS OF EM EQUITIES VS $
10
60
70
80
90
100
110
120
130
140
150
30
50
70
90
110
130
150
170
190
210
Jan
-76
Jan
-77
Jan
-78
Jan
-79
Jan
-80
Jan
-81
Jan
-82
Jan
-83
Jan
-84
Jan
-85
Jan
-86
Jan
-87
Jan
-88
Jan
-89
Jan
-90
Jan
-91
Jan
-92
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Jan
-20
EM - IFC Composite/MSCI EM (from 1987) relative to DM, TR Dollar Index (RHS)
1. Credit bubble 1973-1980 (7y)
2. Debt crisis 1980-1987 (7y)
3. Rediscovery 1987-1994 (7y)
Dollar strengthEM outperforming
4. Rolling crises 1994-2002 (7y)
5. Boom time 2002-2011 (8y)
6. Disillusionment 2011-2020? (9y)
Source Bloomberg, Renaissance Capital
EM & FM WEAKER DOLLAR BENEFICIARIES
11
HU
PL
CZ
LatAm
EMEA
ZA
BR
KR
CO
EM
PE
MY
CLMX
BRIC
TR
EM AsiaTWTH
ID
GR
RU
PH
INCN
AR
AE
PK
EGQASA
MA
Frontier
KZ
BG
UA
RO
LTSI
VN
MU
RSKE
EELKNG
OMJOLBBD
KWBH
HRTN
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.6
BETA (y-axis) and CORRELATION (x-axis) vs weakening dollar, 10 yrs of weekly returns
EM SECTOR WEAKER DOLLAR BENEFICIARIES
12
EM
Real Estate
Materials
Utilities
Financials
Cons Staples
Industrials
Telecoms
Energy
Cons Discr
Healthcare
IT
0.4
0.6
0.8
1.0
1.2
1.4
1.6
0.25 0.30 0.35 0.40 0.45 0.50
BETA (y-axis) and CORRELATION (x-axis) vs weakening dollar, 10 yrs of weekly returns
PER VS HISTORY
13
0
5
10
15
20
25
US
(+
42
%)
Wo
rld
(+
37%
)
Ja
pa
n (
+2
7%
)
EA
FE
(+
26%
)
Eu
rop
e (
+25
%)
Ch
ina
(+
46%
)
EM
Asia
(+
33%
)
EM
(+
30%
)
EM
ex-C
hin
a (
+1
4%
)
La
tAm
(+
5%
)
FM
(+
24%
)
EM
EA
(+
18
%)
12M FWD PER 12M FWD PER 10yr avg
12M FWD PER vs 10 yr average – Latam, EM ex-China and EMEA have had the smallest re-ratings
MSCI EM 27% DISCOUNT TO DM
14
-35
-30
-25
-20
-15
-10
-5
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
EM vs DM EM v DM avg +/- 1SD▪ MSCI EM trading at a 27%
12M FWD PER discount to
MSCI World
▪ Vs a 10 yr average of 23%
▪ 0.6 Standard Deviations
cheap
MSCI EM 12M FWD PER premium (discount) to DM (%) and 10yr avg, +/- 1SD
MSCI FM 12% DISCOUNT TO DM
15
▪ MSCI FM trading at a 12%
12M FWD PER discount to
MSCI EM
▪ Vs a 10 yr average of 7%
▪ 0.6 Standard Deviations
cheap
▪ But when Kuwait exits MSCI
FM at end-November,
valuation resets from 13.0x
to 10.9x
▪ And discount reaches 26%, a
decade high
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
FM vs EM FM v EM avg +/- 1SD AdjustedMSCI FM 12M FWD PER premium (discount) to EM (%) and 10yr avg, +/- 1SD
EM PER VS HISTORY
16
0
2
4
6
8
10
12
14
16
18
20
22
Arg
enti
na
(+5
07
%)
Ind
ia (
+3
3%
)
Sau
di A
rab
ia (
+43
%)
Ph
ilip
pin
es (
+9%
)
Thai
lan
d (
+31
%)
Taiw
an (
+20
%)
Ch
ile (
+2%
)
Ch
ina
(+4
6%
)
EM A
sia
(+3
3%
)
Mal
aysi
a (-
1%
)
BR
IC (
+44
%)
Per
u (
+17
%)
Ind
on
esia
(+3
%)
EM (
+3
0%
)
Mex
ico
(-1
3%
)
Qat
ar (
+17
%)
LatA
m (
+5
%)
Bra
zil (
+1
1%
)
Po
lan
d (
+6%
)
Ko
rea
(+2
6%
)
Cze
ch (
-4%
)
S A
fric
a (-
17
%)
EMEA
(+1
8%
)
Gre
ece
(-3
0%
)
UA
E (+
22
%)
Co
lom
bia
(-3
1%
)
Hu
nga
ry (
-3%
)
Ru
ssia
(+3
2%
)
Egyp
t (-
24
%)
Pak
ista
n (
-20
%)
Turk
ey (
-30
%)
12M FWD PER 12M FWD PER 10yr avg
12M FWD PER vs 10 yr average (green – cheap vs 10 yr avg, red – expensive vs 10 yr avg)
EM SECTOR PER VS HISTORY
17
0
5
10
15
20
25
30
35
He
alth
care
(+
41
%)
Co
ns D
iscr
(+1
03%
)
Te
leco
ms (
+5
7%
)
Co
ns S
tap
les (
+9
%)
IT (
+2
7%
)
EM
(+
30%
)
Ind
ustr
ials
(+
1%
)
En
erg
y (
+3
9%
)
Ma
teria
ls (
-7%
)
Utilit
ies (
-5%
)
Fin
an
cia
ls (
-8%
)
Re
al E
sta
te (
-32
%)
12M FWD PER 12M FWD PER 10yr avg
12M FWD PER vs 10 yr average (green – cheap vs 10 yr avg, red – expensive vs 10 yr avg)
EM DIVIDEND YIELDS DRIVING FLOWS IN TO EQUITIES
18
Dividend yields are higher than bond yields in 14 EM countries, vs 7 in
2015 and 3 in 2010. 17 EM countries have dividend yield > 1yr deposit
rate
0
2
4
6
8
10
12
14
16
*Pak
ista
n
*Cze
ch R
epu
blic
*Gre
ece
*Ru
ssia
So
uth
Afr
ica
*UA
E
Tu
rkey
Egy
pt
*Po
lan
d
*Qat
ar
*Mal
aysi
a
Bra
zil
Mex
ico
*Tai
wan
*Co
lom
bia
*Hu
nga
ry
*Ch
ile
*Sau
di A
rab
ia
*Th
aila
nd
Ind
on
esia
Per
u
*Ko
rea
*Ch
ina
*Ph
ilip
pin
es
Ind
ia
2021E dividend yield, % 10yr local currency bond yield (%) 1yr retail deposit rate (%)
DIVIDEND YIELDS VS BOND YIELDS
19
10 yr returns better for countries with higher relative div yld.
EM GDP REBOUNDS RANKED
20
IMF WEO October 2020: 2021 GDP growth rebound vs 2020
-2
-
2
4
6
8
10
12
14
16
18
20
22
24
Per
u (
+21
.2)
Ind
ia (
+1
9.1
)
Arg
enti
na
(+1
6.7
)
Ph
ilip
pin
es (
+15
.7)
Mal
aysi
a (+
13
.8)
Gre
ece
(+1
3.6
)
Mex
ico
(+1
2.5
)
Co
lom
bia
(+1
2.2
)
Cze
chia
(+
11
.6)
Thai
lan
d (
+11
.1)
S A
fric
a (+
11
.0)
Ch
ile (
+10
.5)
Hu
nga
ry (
+10
.0)
Turk
ey (
+1
0.0
)
Bra
zil (
+8
.6)
S A
rab
ia (
+8.5
)
Po
lan
d (
+8.2
)
UA
E (+
7.9
)
Ind
on
esia
(+7
.6)
Qat
ar (
+7.0
)
Ru
ssia
(+6
.9)
Ch
ina
(+6
.4)
Ko
rea
(+4
.7)
Taiw
an (
+3.2
)
Pak
ista
n (
+1.4
)
Egyp
t (-
0.8
)
2021 rebound (ppts) 2021 GDP growth (%)
21
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
Mau
riti
us
(+2
4.1
)
Cro
atia
(+1
5.0
)
Slo
ven
ia (
+1
1.9
)
Mo
rocc
o (
+1
1.9
)
Tun
isia
(+1
1.0
)
Sri L
anka
(+9
.8)
Esto
nia
(+9
.7)
Om
an (
+9
.5)
Ro
man
ia (
+9.4
)
Ku
wai
t (+
8.7
)
Jord
an (
+8.4
)
Serb
ia (
+7.9
)
Bah
rain
(+7
.2)
Nig
eria
(+6
.0)
Sen
egal
(+5
.9)
Lith
uan
ia (
+5.9
)
Kaz
akh
stan
(+
5.7
)
Vie
tnam
(+5
.1)
Ivo
ry C
oas
t (+
4.4
)
Ken
ya (
+3
.6)
Ban
glad
esh
(+0
.6)
2021 rebound (ppts) 2021 GDP growth (%)
FM GDP REBOUNDS RANKEDIMF WEO October 2020: 2021 GDP growth rebound vs 2020
COMMODITY DEMAND
22
US$ GDP growth for key EM Asia back well above 2007-12 levels
-500
0
500
1,000
1,500
2,000
2,500
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
Bangladesh
Malaysia
Vietnam
Thailand
Korea
Indonesia
India
China
TOTAL
CONCLUSION
23
1. Dollar weakness and EM equity strength go hand-in-hand (historically on a 7-10yr
cycle). A split Senate could be good for EM as it implies more emphasis on monetary
stimulus (weak dollar, search for yield).
2. Dividend yields exceed local bond yields in over half of EM now, and term deposits in
two-thirds of EM.
3. Lacklustre flows to EM equity over the last decade suggest potential for significant
re-allocation to EM equities from international investors on the back of a normalization of
trade rhetoric and weaker dollar.
4. Weaker dollar suggests investors may move up the risk curve rotating out of Asia
towards cheaper currencies in Latin America and EMEA – financials could also perform
better
5. A stronger CNY suggests dollar GDP creation by China back to record levels,
supporting commodities
6. Frontier equities look particularly cheap once Kuwait transitions at the end of
November
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cannot be relied upon as a representation that any particular transaction necessarily could have been or can be effected at the stated price. The Communication is not an
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contrary to opinions expressed by other business areas or groups of Renaissance Capital as a result of using different assumptions and criteria. All such information is
subject to change without notice, and neither Renaissance Capital nor any of its subsidiaries or affiliates is under any obligation to update or keep current the information
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Descriptions of any company or issuer or their securities or the markets or developments mentioned in the Communication are not intended to be complete. The
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individual circumstances and, accordingly, each investor should seek independent professional advice on taxation implications before making any investment decision. The
Communication has been compiled or arrived at based on information obtained from sources believed to be reliable and in good faith. Such information has not been
independently verified, is provided on an ‘as is’ basis and no representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness,
reliability, merchantability or fitness for a particular purpose of such information, except with respect to information concerning Renaissance Capital, its subsidiaries and
affiliates. All statements of opinion and all projections, forecasts, or statements relating to expectations regarding future events or the possible future performance of
investments represent Renaissance Capital’s own assessment and interpretation of information available to them currently. Any information relating to past performance of
an investment does not necessarily guarantee future performance.
The Communication is not intended for distribution to the public and may be confidential. It may not be reproduced, redistributed or published, in whole or in part, for any
purpose without the written permission of Renaissance Capital, and neither Renaissance Capital nor any of its affiliates accepts any liability whatsoever for the actions of
third parties in this respect. The information may not be used to create any financial instruments or products or any indices. Neither Renaissance Capital and its affiliates, nor
their directors, representatives, or employees accept any liability for any direct or consequential loss or damage arising out of the use of all or any part of the
Communication.
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