JPMorgan, UBS nailed emerging markets bet
Two banks vindicated for saying developing nations would ride out the storm after worst market turmoil in years
Even as global markets suffered the worst bout of turmoil in years, commentators from JPMorgan Chase & Co to UBS Group AG said developing nations would ride out the storm.
JPMorgan’s Diana Amoa said it wasn’t a taper tantrum, while UBS’s Geoffrey Wong dismissed it as a mere blip, predicting a quick rebound. Others insisted emerging markets were well supported by earnings growth.
For a while, it looked like they were wrong. As market after market got sucked into the sell-off, emerging stocks erased $1.83 trillion (Dh6.72 trillion).
But it looks as though emerging markets came out of it looking better than their richer counterparts, especially the US. As the dust settles on the selling spree, here’s what emerged:
Options traders least worried about EMs
While fretting over the US, Europe and Japan, derivative traders were the least concerned about emerging markets. Expected volatility, derived from options prices, rose by a smaller degree in developing nations since January 26 than in the developed world.
EM selloff was mainly China’s problem
The world’s second-largest economy saw its equities lose more than $1 trillion, as much as the entire Brazil market, in the past two weeks. Almost 80 per cent of all emerging-market losses during the period was in China’s neighbourhood.
The only country to see its market capitalisation rise was Egypt, which is reaping the rewards of a currency float.
Biggest was not the best
Some of the biggest and deepest markets in the developing world suffered the worst meltdowns. In contrast, tiny markets such as Pakistan and Egypt outperformed others.
Cheapest was no hedge
Those who had bet that the most expensive emerging markets would witness bigger losses than lower-valued peers got a jolt. The roll call of the biggest losers included some of the cheapest markets in the world: Russia, South Korea and Hong Kong-listed Chinese shares.
Futures sentiment quickly rebounded
Whether one might look at the futures market as a signal for expected moves in spot prices, or merely as a reflection of current sentiment, the signs of panic there were unmistakable. But then, the hysteria evaporated as quickly as it had emerged. The futures index swung to a premium, the widest since September 2013. The fluctuations seemed to have settled by Monday and futures traded higher than spot prices.