Offshore Capitalist

Emerging-Market Rally to Extend to 2010

Nov. 4 (Bloomberg) — Emerging-market equities, heading for their best year in a decade, will lead a first-half advance in global stocks in 2010 as export and domestic demand pick up, according to Prudential International Investments Advisers LLC.

John Praveen, chief investment strategist at Prudential, said he is “underweight” U.S. stocks for the first six months of 2010 and is advising investors to switch from emerging markets to American equities in the second half.Benchmark indexes in China and India, up more than 50 percent in 2009, will rise between 20 percent and 25 percent next year, he said.

“Emerging markets have not reached a stage where they are very, very expensive or they are in a bubble,” Praveen said in an interview from Seoul yesterday.Prudential International Investments is a unit of Prudential Financial Inc., which manages about $580 billion of assets.

The MSCI Emerging Market Index has surged 59 percent this year, poised for the best gain since a 64 percent rally in 1999. It trades at 21 times reported earnings, lower than the 29.3 times multiple for the MSCI World Index, which has increased 20 percent in 2009. The 10 best-performing stock indexes this year are from developing countries, led by gauges in Peru, Argentina and Russia, according to data compiled by Bloomberg.

China’s Shanghai Composite Index is ranked eighth after climbing 71 percent. Equities rallied as Premier Wen Jiabao’s $586 billion stimulus package and record lending helped third- quarter gross domestic product expand 8.9 percent from the same period in 2008, the fastest pace in a year.

The Shanghai index has pared a gain of as much as 91 percent amid concern that China will restrain stimulus measures too early. A decline in new loans in July sent the gauge down 22 percent in August.

Gradual Withdrawal

“China’s rally until now has been driven by liquidity, and the next phase of rally is likely to be driven by earnings recovery and solid GDP growth,” Praveen said. “Even if the stimulus is going to be withdrawn, it’s going to be withdrawn in a very gradual way.”Aberdeen Asset Management Plc said yesterday the U.S. economy may “relapse” next year on concern that the government’s rescue efforts may not be sustainable.

via Emerging-Market Rally to Extend to 2010, Praveen Says Update2 – Bloomberg.com.

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