Developing countries' share of worldwide equity value climbed to a record as the fastest-growing economies lured investors amid the first global recession since World War II.
The 22 nations classified as ``emerging'' by index provider MSCI Inc. comprise 24 per cent of world market capitalization, up from 18 per cent at the start of this year, the highest proportion since Bloomberg began compiling the data in 2003. China shares surpassed $US3 trillion ($3.75 trillion) yesterday for the first time since August, from $US1.8 trillion at the end of 2008.
The increase signals growing confidence in developing countries as equity investors, spurred by interest-rate cuts and stimulus plans, redeploy cash after the worst US losses last since the Great Depression. The MSCI Emerging Markets Index rose 35 per cent, beating a 2.9 per cent advance in the MSCI World Index of developed economies and lifting the value of stocks to $US8.5 trillion from $US5.1 trillion in 2008
``Everyone is trying to jump on that bandwagon,'' said Nicholas Field, who helps manage about $US11 billion in emerging-market stocks at Schroders in London. ``There are projects in emerging markets in which I can make more money than I can in the West at the moment.''
Developing economies will probably expand 1.6 per cent as a group this year and 4 per cent in 2010, according to the Washington-based International Monetary Fund. Developed nations will contract 3.8 per cent in 2009 and have zero growth next year, the IMF forecast in its April World Economic Outlook report.
China stimulus
Investors poured a record $US26.5 billion into developing- nation stock funds in the second quarter, with China receiving $US3.8 billion, according to data released yesterday by EPFR Global. The funds overall attracted $US972 million in the week ended July 1, resuming net inflows after the first decline since March the previous week, the Cambridge, Massachusetts-based research firm said.
China's market capitalization has jumped more than fivefold from about $US500 billion at the end of 2003, according to Bloomberg data that includes common and preferred stock. The Chinese economy more than doubled in that time to $US3.8 trillion, according to the World Bank.
The world's third-largest economy after the US and Japan has been boosted by a 4 trillion-yuan ($730 billion) stimulus package and five reductions to the key one-year lending rate in the last four months of 2008. The Shanghai Stock Exchange Composite Index rose 70 per cent this year.
Big spending
Investors should buy emerging-market equities rather than European stocks to benefit from China's stimulus measures and a rally in commodities, Fortis Investments strategists Joost van Leenders said yesterday, adding to his already ``overweight'' position in developing economies. Fortis manages about $US240 billion.
The Reuters/Jefferies CRB Index of 19 raw materials rose 13 per cent in the three months to June 30 after falling for three quarters.
The MSCI Emerging Markets Index was little changed today, dropping 0.06 per cent at 12:56 p.m. in London. It plunged a record 54 per cent in 2008 as the financial crisis, which started with the collapse of the US property market in 2007, triggered more than $US1.47 trillion of losses at financial institutions worldwide and led to the seizure of global credit markets.
$US75 billion bailout
Some $US67 billion was pulled out of emerging-market equities and bond funds in 2008, EPFR data shows. Investors returned to become net buyers of emerging-market stocks this year on prospects government stimulus plans, interest-rate cuts and the potential of as much as $US750 billion in International Monetary Fund support.
The IMF has so far pledged more than $US75 billion to bail out economies hurt by a lack of credit and plunging exports. Romania, Hungary and Ukraine got a combined $US50 billion in aid.
All 10 of the world's best-performing indexes in the second quarter are developing markets, led by Ukraine, Vietnam and Kazakhstan, according to data tracked by Bloomberg.
``You have to remember how much emerging-markets fell and how much capital was withdrawn last year, so some of it is a kickback from that,'' Schroders' Field said.
Brazil, the world's eighth-largest economy, has reduced taxes and cut the benchmark interest rate at all four policy- meetings this year in a bid to help Latin America's largest economy recover. The market capitalization of the nation's shares reached a year-high of $US952 billion last month and was at $US920 billion yesterday, Bloomberg data show.
Cutting rates
The Reserve Bank of India, the fourth-biggest emerging economy, reduced borrowing costs six times in seven months and the government announced three stimulus packages comprising about 7 per cent of gross domestic product. The market capitalization of Indian equities is at $US989 billion after reaching a 10-month high $US1 trillion last month.
Russia's government has allocated $US81 billion in stimulus spending this year on loans, state aid and subsidies to battle an economic contraction of 10.2 per cent in the first five months of the year, when industrial production slumped a record 17.1 per cent in May.
The country's Micex Index last month became the world's first benchmark equity index to enter a bear market since global stocks began rallying in March, tumbling more than 20 per cent from a June 1 peak. The Micex dropped 2 per cent today to an eight-day low. Russia's shares have a market capitalization of $US339 billion.
The annual gross domestic product of India and Brazil have more than doubled since 2003, while Russia's economy has more than tripled to $US1.6 trillion.
