All fall down都跌了
Oct 9th 2008
From The Economist print edition
Firms in developing countries struggle to escape their roots发展中国家中的公司挣扎着逃命
STOCKMARKET bubbles often take a genuine improvement in economic orcorporate performance, and then vastly overestimate its effect. Equityinvestors in emerging markets must wonder if they have once again beensuckered into giving developing countries the benefit of the doubt.Prices have fallen by almost half this year. On October 6themerging-market shares recorded their biggest one-day fall in at least20 years, prompting all-too-familiar scenes of chaos followed byenforced inactivity, as trading at some bourses was suspended.
For bullish investors one attraction of emerging economies was thefact that they had started with better public finances andbalance-of-payments positions than in previous cycles. How resilientthose positions are is now being tested, as plunging commodity pricessap export earnings and capital flows dry up. Even sound economies maystill be dragged down. As Stephen Jen, an economist at Morgan Stanley,points out, in a crisis “bad things happen to good countries”.
Equity investors’ enthusiasm also reflected a more novel idea—thatthe quality of emerging-market companies had improved. Rather than anold guard of conglomerates with hazy ownership and accounting, thethesis ran, there was a new generation of large, well run, globallycompetitive “mega-cap” firms. Indeed, these might even be less riskythan their homelands’ governments. And just as the Dutch economy haslittle bearing on Royal Dutch Shell’s share price, or the Britisheconomy on Vodafone’s, the hope was that these firms might eventuallytranscend their domestic markets.
Some of the claims were over the top. In April 2007 Gazprom, anenergy firm controlled by the Kremlin, made a Dr-Evil-style predictionthat its market value would reach $1 trillion (ten times today’slevel). But there was substance too, exemplified by the wave ofcredible bids for Western companies before the credit crunch, such asthe multibillion approach by Vale, a Brazilian miner, for Xstrata.
EPAJust like the old days
Why then, have most emerging stockmarkets fallen by more thanWestern ones, particularly in the past month? There are some plausiblefundamental explanations. They may have been more overvalued to startwith. Even after their tumble, the aggregate price-earnings ratio is inline with developed markets, rather than at the discount that has beenthe historical norm. The composition of most indices also makes themvulnerable. Almost two-fifths of the earnings of the FTSEemerging-markets benchmark are from highly cyclical energy orbasic-materials companies—twice the share in developed markets—soearnings forecasts are falling faster than for developed peers. Mostindices under-represent mainland China, which has been relativelyresilient in recent weeks, on the grounds that it is hard forforeigners to invest there. And the top 20 companies account for justover a quarter of the FTSE emerging-markets index. Although that is ahigher proportion than in developed economies, it still leaves a longtail of smaller firms which may be less well run.
As well as quirks of composition and valuation, the harsh reality isthat, as in previous crises, investors are not discriminating much.Most “mega-cap” companies have been penalised more heavily thanrich-world peers in the same industry. Credit-default swaps, a type ofinsurance against bankruptcy, suggest that the borrowing costs of bigemerging-markets firms have spiked along with those of their homecountries’ governments. This is despite the fact that emerging-marketindustrial companies in aggregate, like their governments, have lowerdebt levels than their Western equivalents. Shares of emerging-marketbanks, which with the exception of a few places such as Russia are inreasonable shape, have plunged in sympathy with their Western peers.
There may well have been structural improvements in emergingeconomies, but just now markets are having none of it. That couldpresent a buying opportunity. But if capital remains scarce for toolong, and big companies struggle to refinance their foreign debt,investors’ gut reaction could become a self-fulfilling prophecy.