Bloomberg News

Fidelity Says Emerging Stocks to Beat Developed in 2012

December 09, 2011

(Adds Fidelity quote in second paragraph.)

Dec. 8 (Bloomberg) -- Emerging-market stocks will outperform those of developed nations next year as monetary policy becomes more “accommodative,” according to Fidelity Worldwide Investment. Citigroup Inc. said developing shares may advance about 28 percent by the end of 2012.

“We believe that emerging markets will ultimately deliver better economic and stock-market performance in 2012 than their overly indebted developed counterparts,” Dominic Rossi, Fidelity’s global chief investment officer for equities, said in a report e-mailed today.

The MSCI Emerging Markets Index has dropped 17 percent this year, trailing the 6.3 percent loss in the MSCI World Index of developed-country shares, as concerns over the European sovereign-debt crisis and slowing U.S. economic growth prompted fund managers to seek less risky investments.

Prospects for capital appreciation in most developed equity markets are expected to be low, while “opportunities exist” in emerging markets, Rossi wrote. The long-term case for emerging markets is “intact,” the report said.

Citigroup set a 2012 year-end target of 1,225 for the MSCI Emerging Markets Index, saying developing economies should grow 5.1 percent next year, compared with 2.5 percent for the global economy. The gauge fell 0.4 percent to 955.85 at 4:50 p.m. in Singapore.

Policy Easing

Morgan Stanley’s Jonathan Garner lifted his recommendation on emerging markets to “maximum overweight” for the first time since October 2008, according to a report on Dec. 2. Markus Rosgen, a Citigroup strategist, said this month that Asian stocks may surge 30 percent, while Credit Suisse Group AG’s Sakthi Siva predicted a 10 percent gain.

“Policy is being eased in Brazil and China and more countries should follow,” Citigroup analysts led by Geoffrey Dennis wrote in a report dated yesterday. “Emerging-market equities have performed better in recent years when rates are falling and Chinese reserve-ratio requirements are declining.”

Indonesia, Turkey and Brazil have lowered interest rates to bolster domestic demand, while China cut reserve requirements for banks. Current valuations for emerging-market stocks are pricing in “a lot of bad news” that may not materialize, the Citigroup analysts wrote.

Not all analysts are as positive. Deutsche Bank AG’s John- Paul Smith said emerging-market stocks will probably trail advanced countries next year, because companies in developing nations are producing less cash and investors are too optimistic about the prospects for government stimulus, according to a report on Dec. 6.

Fidelity recommended high-dividend stocks with “reliable earnings,” Rossi said in his report, without naming specific companies.

Citigroup upgraded South Africa, Thailand and Peru to “overweight,” alongside South Korea and China, and favors “large markets over small,” according to the report. The analysts lifted material stocks to “overweight,” alongside financials and consumer discretionary, while energy stocks were raised to “neutral.”

--Editors: Matthew Oakley, Darren Boey

To contact the reporter on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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