The Hindu Business Line : Emerging markets outperform others

"THE easy-money crowd are always looking for the certainty, the sure thing! Once the stock market, the property market, the gold market - or whatever other market you can think of - acquires the reputation of being a sure thing, further substantial rises in the price level are an absolute certainty." - Robert Beckman in "The Crashes."

The year just ended clearly belonged to emerging markets such as Thailand, Brazil and India, which have significantly outperformed other markets. Even the big economies such as the US, Japan, Hong Kong and Germany, have posted a healthy return of about 25 per cent.

There was some uncertainty in the first quarter due to the war in Iraq. However, the quick end to the war ensured that global markets were back on track.

After three successive negative years, particularly in the developed markets, equities across the globe rebounded on hopes of an economic recovery in the US. The latest economic data did not let down investors' faith, as the gross domestic product expanded at an annualised 8.2 per cent in the third quarter, the briskest since 1984. The dollar had a torrid time against all leading currencies due to worries about the US current account deficit; the dollar tumbled 16 per cent against the euro and about 10 per cent against the yen.

Despite the strong euro, the European markets sizzled, led by technology and telecom stocks such as Alcatel of France, Sweden's Ericsson and Spain's Telefonia. The semi-conductor majors Infineon Technologies of Germany and Dutch chip equipment maker ASML also flared up.

But the real pace was set by the Asian bourses, thanks to the strong Chinese and Indian economies; India is set to become the third largest economy after the US and China. For the first time in Indian history, forex reserves crossed the $100-billion mark and the Nifty soared to new peaks on foreign institutional investments.

The Chinese economy is set to grow a healthy 8 per cent, according to its Government estimates. Though China revived the sentiment in the whole region, it did not gain as much as shares were more expensive there than at Hong Kong. (The Shanghai Composite Index was valued at 60-times earnings, triple the ratio for the HK benchmark).

Thailand and Brazil were the top gainers in 2003. The Thai government in December boosted its forecast for 2003 economic growth to 6.3 per cent.

The Brazil's Bovespa Stock Index soared to its highest level since it was created in 1968, as the country's economy and exporters had benefited from the Chinese demand for commodities. A combination of relief that the new government has steered the country away from crisis, and optimism that months of recession may soon be replaced by growth ensured Brazilian markets peaked.