Emerging markets undervalued, analysts say, but ignore oil

Emerging Market Stocks to Outperform, Garner Says: Chart of Day (Bloomberg): Emerging-market stocks are a better buy than those of more developed regions because their economies will rebound more quickly from the global slowdown, according to Jonathan Garner, a strategist at Morgan Stanley.

Since October, emerging stocks have begun to close the gap on developed-market stocks, a trend that will continue next year, Garner says. But where? And how will the relationship with oil affect these stocks?

Looking Ahead: Emerging markets remain attractive (The Economic Times): Given the steep market decline, investors have begun to shift their focus to the increasingly attractive valuations in emerging markets. Many markets are trading at single-digit price-to-earnings ratios, with many companies trading at below their net asset value. Stock prices rebounded in December, as investors sought to benefit from the attractive investment opportunities in the asset class.

Dr. Joseph Mark Mobius and Garner both say the emerging markets are undervalued, but so is oil right now. These guys don’t even mention oil or other commodities for that matter. Obviously some countries aren’t relying on oil (China and India) and will benefit from the low prices. But do we need an equilibrium before stocks rebound?

EMERGING MARKETS-Bond advance narrows spreads, stocks sink(Reuters): Investors dipped deeper into their cash horde on Friday, buying selectively in emerging market sovereign bonds but stopped short when it came to stocks and currencies in thin pre-Christmas holiday trade.

Brazil Bank Estimates Cut at Goldman Sachs on Rates (Bloomberg): Brazilian banks had their 2009 and 2010 earnings forecasts cut by Goldman Sachs Group Inc., which said a drop in lending rates will lower profits while an economic slowdown curbs loan growth.

Oil’s Crash Stirs Unrest in Russia as Slump Hits Home (WSJ): Russia’s oil-fired economic miracle is unraveling as industry shrinks and job losses mount. Now the first stirrings of social unrest have the Kremlin groping for a response.

Exhibit A: The emphasis on oil here is clear. If oil prices remain depressed, then it is difficult to justify Garner’s  and Mobius’ thesis.

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