Joseph Mariathasan: The case for active in emerging markets

first_imgThis acknowledges that most dispersion between emerging market stock returns is due to country factors. It has certainly been true in the past that one characteristic of emerging market stocks was the generalisation that they were more highly correlated to their local stock market than their global sector allocation.While this tendency has grown more muted over the last couple of decades, the dispersion across emerging markets in the immediate aftermath of the US election was quite striking. Russian stocks climbed 20% between 8 November and mid-February, while Polish and Egyptian equities were up about 12% over the same period. Mexican stocks fell 12%.Are emerging markets riskier than developed? Economist and entrepreneur Jerome Booth always likes to proclaim that the difference between the two is that, in emerging markets, risk is acknowledged and discounted, while developed markets suffer from a misperception of risk.From a developed market investor point of view however, as Subramaniam points out, single-country emerging market portfolios can remain riskier than their developed market counterparts by one important measure: currency risk. MSCI finds that in many countries, over 40% of market volatility arises solely from currency effects.Yet what Subramaniam does not point out in his article is that developed markets also see tremendous volatility from similar sources. The Brexit vote caused sterling to fall almost 20% against the dollar and has every chance of falling much further. The long-term survival of the euro is also at risk with political uncertainties sweeping across Europe.While currency risk is inherent in any emerging market transaction, it is also present in a developed market transaction outside the home market. The management of this risk is primarily through diversification across the universe of emerging markets. But as the divergence between developed and emerging markets grows stronger, the rationale for having separate passive global emerging market mandates may become weaker.Subramaniam argues that the divergence in results across emerging markets suggests that, as emerging markets mature and both country and currency effects widen, institutional investors can implement more active mandates to take advantage of the differences. Provided, that is, they are willing to accept the risks.Perhaps the greater problem investors have faced in emerging markets, however, has been the volatility associated with large scale flows into and out of global emerging market exchange-traded funds, which have pushed markets both up and down. For long-term institutional investors, perhaps such volatility should be discounted – and investment decisions made on assessments of fundamental valuations rather than fund flows. That would suggest treating major emerging markets such as China and India as separate investment destinations in their own right, much as Japan has been considered for the past three or four decades.What is clearer is that passive global emerging market allocations based on a market cap weightings give institutional investors excess volatility associated with fund flows rather than fundamentals. Perhaps it is time for a more intelligent approach. MSCI in a recent note raised the issue as to whether it is time investors re-examined their approaches to investing in emerging markets.Raman Aylur Subramanian of MSCI’s equity applied research team makes the point that institutional investors face at least three choices in their allocations to emerging markets. They can allocate to an integrated, global equity approach (active or passive). They can adopt a dedicated emerging markets allocation. Or they can make active allocations to particular countries within emerging markets.There is a long-term structural change in the world which can be seen as the narrowing of the arbitrage between emerging markets and developed. There are many different manifestations of this, including the rise of the domestic consumer within emerging markets, and the increasing role of trade flows within emerging markets, compared with trade flows between emerging markets and developed.Then there is what MSCI themselves raise in Subramaniam’s article, namely the convergence of return and risk profiles between developed and emerging markets. Combined with the dispersion between countries within emerging economies, this means that some institutional investors are reconfiguring mandates to take more active views on individual countries.last_img read more

Special teams, goaltending carry Badgers to next round

first_imgNew season, new life.With the regular season behind it, the Wisconsin women’s hockey team hosted St. Cloud State at the Eagle’s Nest, sweeping them 9-3 and 5-1, respectively, and earning a spot in the WCHA Final Face-off next weekend.While the Huskies didn’t have the most ideal regular season – winning only one game – the No. 1 Badgers expected a tough fight, especially from a team that was given new life in the playoffs.“As I mentioned in a press conference on Monday, you get into the playoffs and you start a second season,” head coach Mark Johnson said. “Everybody’s at the starting gates irrelevant of how the season went… They’re here to win, so they came out and they’re going to play hard.”Special teams shineDespite being the underdog, SCSU gave UW a physical fight with a total of 22 penalties between the two squads.With 10 power play opportunities in the series, Wisconsin capitalized on four of them, including three Friday night with five opportunities.Fielding a stronger power play, the Badgers know how important special teams play is to winning games.“They’re huge,” Johnson said. “Obviously special teams at this time of the year are crucial as you get farther along in the games. If you are going to be successful, you need your penalty kill unit working hard and your power-play unit scoring goals. That is going to help you win games.”“Extremely important,” junior forward Hilary Knight added. “We want to capitalize on every opportunity. There was a bunch of penalties called here tonight. We got a couple bounces that went our way and others that [SCSU goaltender Ashley] Nixon made a great save on.”Not only did UW have a fairly successful power play – especially Friday night – the squad was also solid on the penalty kill, allowing only one power play goal through eight chances for SCSU on the weekend.Fighting to stay alive, the Huskies started to get very physical in the third period of Saturday night’s game, sitting in the penalty box three times, while the Badgers couldn’t seem to stay disciplined with five different players in the box in a 10-minute span.“You can’t control what the refs are doing,” said sophomore forward Brianna Decker. “We had to PK a lot, especially in the third period. We thought the last two minutes was probably the longest two minutes of our lives, just sitting there on the bench, waiting for the game to end. We just had to stay on them, not give them time or space.”Rigsby eases into playoffsHeading into the third period Friday night, St. Cloud State kept things close at 4-3, just one goal behind Wisconsin.Freshman goaltender Alex Rigsby didn’t let the Huskies score another goal until there were six and a half minutes left in Saturday night’s game.In her first playoff experience, Rigsby stayed relatively solid for the Badgers. But after letting in three goals and allowing the Huskies to stay in Friday night’s game entering the third period, it seemed like her nerves may have been catching up to her.“[Rigsby’s a] young kid,” Johnson said. “It’s a rink that there’s not a lot of space behind the net. If the puck gets there, it doesn’t take much to get it out in front of the net. Pucks seemed to be bouncing the whole game. Again for her, it’s her first playoff game and it’s a learning opportunity for her.”There seemed to be a distinct difference in Rigsby’s play Saturday. She made 16 total saves that prevented the Huskies from getting any sort of momentum going.Friday night, Wisconsin outshot St. Cloud by only eight shots – one of the closest margins the squad has seen all season. But facing a total of 34 shots, Rigsby held strong, saving 30 of them.“[Friday] night, we really let our guard down and let people break in into the inside of the ice and that wasn’t her fault,” Knight said. “She’s a great player, every game growing and evolving into – hopefully – Jessie [Vetter] or whomever the top goaltender is.”last_img read more