We have updated our privacy policy and terms & conditions. Find out more here.

Emerging Markets Getting Squeezed

By  |  Market Overview  |  Aug 28, 2013 05:02AM GMT  |   Add a Comment
Emerging Markets Getting Squeezed
By   |  Aug 28, 2013 05:02AM GMT
Figure 1
Figure 1

I don’t expect that yesterday’s anxiety attack over the deteriorating Middle East situation will turn into another panic attack for the US stock market. On the other hand, while US stock prices have been quite resilient this summer, the currencies, bonds, and stocks of emerging market (EM) economies have been getting clobbered. This has happened because global investors fear that the consequences of prospective Fed QE tapering will be more severe for the EMs than for developed economies.

That’s only part of the story. The fact is that the forward earnings of the MSCI Emerging Markets composite peaked at a record high during the week of August 4, 2011 and has been trending lower since then. Analysts’ consensus estimates for both 2013 and 2014 also are falling, and at a faster pace in recent weeks. Net earnings revisions have been negative for the past 30 months.

Revenues still are rising for the companies included in the MSCI EM index, but at a significantly slower pace since 2011 than during the global economic recovery of 2009 and 2010. The big story is the collapse of the forward profit margin since early 2011 from around 8.5% to 6.5% now. The likely cause of that is rising labor costs. The recent rise in oil prices must also be squeezing margins.
Figure 2
Figure 2
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?

Successfully Reported

Thank you. This comment has been flagged for a moderator.