Jyske Invest Emerging Market Equities

Market Comments, Q4 2011

Review

Emerging-market equities rose by 4.42% in Q4, putting an end to the downturn which began in the first quarter of the year. Jyske Invest Emerging Markets rose by 3.55% in Q3, which was a slightly smaller increase than for the market. For the year to date, Jyske Invest Emerging Market Equities fell by 18.31% while the market fell by 18.42%.

A string of major negative macroeconomic events left its mark on equity prices in the Emerging Markets in 2011. The year began with turmoil and revolutions in North Africa and the Middle East, resulting in surging oil prices. The situation was followed by earthquake and nuclear disaster in Japan, which had temporary – yet forceful – negative implications on the global supply chain. Concurrently, US economic indicators began to show signs of weakness and the fears of a hard landing of the Chinese economy began to influence the markets. Over the summer, the escalating debt crisis in Europe and political deadlock in the US propelled further falls in the markets and not even improved economic indicators from the US late in the year were able to rectify the major price declines in the Emerging Markets.

Owing to the serious events in 2011, investors sold the most risky assets, which severely affected the emerging-market equities, although most problems derive from other places in the world. Emerging-market equities fell by almost 18% in 2011, while equities in the global equity market only lost 6%.

Emerging-market equities dropped back across the board in 2011. Asia – which has the strongest growth in the three regions – recorded the best performance with a fall of 17%. Eastern Europe saw the most favourable start to the year, among others due to the rising oil prices which supported the Russian equity market. But the escalating debt problems in Europe over the summer and the prospects of a recession in Europe in 2012 caused the Eastern European markets to tumble in H2 and the region ended the year as the poorest performing region with a 22% decline. In Latin America, equities lost 18%.

Outlook

The global economy is facing a number of large challenges which are dependent on political intervention and the outcome is therefore hard to predict. This may have considerable influence on the benchmark return in the coming year. There is an actual risk that the EU will be split up in one way or another. The uncertainty by itself is enough to reduce the economic activity in Europe and the rest of the world and put further pressure on the emerging-market equities. The situation in the US is also a problem and the US has gone very far with respect to monetary and fiscal policies, aiming to offset the repercussions of the financial crisis.

After all, there are also positive factors which may contribute to lifting the emerging-market equities in 2012. There are indications of budding optimism in the data from the US housing market and US consumers. Inflation in China and elsewhere in the emerging markets is decreasing and political focus is now on stimulating growth rather than measures to fight inflation. The emerging-market businesses are healthy, public finances are solid and consumers are not indebted.

Additionally, emerging-market equities are undervalued – both in absolute terms and relative to developed-market equities. This reflects the already great fear in the market, which is a good basis for rising equity prices in 2012. But it takes a shift in the global economy and the market psychology.

Please note

Past performance is not a reliable indicator of future results. The value of and return on your investment may fall, and you may not get back the full amount invested. Investment in small and emerging markets may prove more volatile than investment in other markets. An initial charge is usually made when you purchase and sell units. The fund may invest in instruments denominated in various currencies. You should be aware that changes in exchange rates may have an adverse effect on your investment. This may also be the case if USD is not your base currency.

Information in this text should not be regarded as investment advice, and investors should consult their own investment and tax advisers before buying or selling.