Emerging-nations stocks in eastern Europe, Middle East and Africa will outperform developed-countries shares because of economic expansion, improving industrial output and global excess liquidity, according to Credit Suisse Group AG.
The MSCI EMEA Index is set to climb to 400 by the end of 2013, Credit Suisse analysts said in an e-mailed report today. The gauge slipped 0.2 percent to 346.65 by 3:38 p.m. in London and has gained 14.3 percent this year, compared with a 12.8 percent increase in the MSCI World Index, data compiled by Bloomberg show.
Investors should hold 12 percent above the index weighting for Russia and 10 percent for Hungary, and 5 percent below for Poland and 10 percent under for South Africa, according to the report. Switching each January to the worst-performing three countries of the previous year would have outperformed the EMEA benchmark by 122 percent since 1999, it said.
“We believe 2013 will mark a re-emergence of emerging equity market outperformance,” Alexander Redman and Arun Sai, London-based analysts at Credit Suisse, wrote in the report. “However, global equity funds do not appear positioned to take advantage of a resurgence in emerging market outperformance.”
Global equity funds have reduced their average exposure to the region to 14 percent below the benchmark by the end of October from 2 percent under in May, according to Credit Suisse. Their exposure to Brazil, Russia, India and China has also fallen to 14 percent below the benchmark from 4 percent above over the same period, the report said.
Russia is hurt by a lack of “any tangible improvement” in the fixed investment climate, an absence of domestic institutional ownership and “challenging demographics” compared with other emerging markets, according to Credit Suisse.
Russia’s OAO Novatek, a non-state natural-gas producer, retailers OAO Magnit and OAO M.Video, Internet companies Yandex NV and Mail.ru Group Ltd. are among the investment bank’s top stock choices for 2013, the report said. The list also includes South Africa’s Discovery Holdings Ltd., the owner of the country’s biggest medical-insurance administrator, Arcelik AS, Turkey’s largest maker of washing machines, and Saudi Arabia’s Riyad Bank, according to the report.