India (+7.4%), South Africa (+4%), Brazil (5.2%), Turkey (+7.8%): Investors have had a handful of catalysts for rotation within EM even if there has not been absolute flows into the asset class, and these four countries have been beneficiaries even if they also present their fair share of fundamental issues. India benefits as China lags on macro and credit uncertainty. India gets a pass on reform as investors look to elections with positive expectations.
South Africa has endured months of macro headwinds from the currency related to mining pressures and political and social challenges. Yet, in the last month the Rand has rallied 5.5% as capital flows have come back home from South African corporates. We have attached a slide from our presentation to a large group of investment advisors in early February where we have SA as a tactical buy partly for this reason.
Brazil is rallying as, regionally, Mexico is lagging because the reform that was so positive for investors last year still needs to be ratified and moved on. Also, Brazil is rallying because the market thinks next year's change from elections (whether Dilma stays in office or not) can be rallied right now as S&P downgrade and power rationing fears mean the government must act now.
Turkey, also an EmergingMoney strategy OW for the next 12months, rallies as Russia implodes. Any investor in the EMEA region will tell you that there is a zero-sum game that goes on with allocations between Russia and Turkey when one or the other market is under siege. Turkey, despite its own political uncertainty, is rallying because it already faced its crisis while Russia still must play out its regional hand.
The Turkish market is improving in some political clarity from month-end local elections where it is expected the AKP will retain majority.