Year of redemption for emerging markets

Global investors' faith in the emerging markets seems to have been rewarded well in 2004, as equities in most of these markets have fared far better than those of the US and Europe.

Most of the emerging market equities delivered double-digit returns during the year, while developed country shares gained in single digits.

In the US, the technology-heavy Nasdaq Composite managed to return 8.6 per cent, while Dow Jones, an index of thirty US blue-chip shares, returned 3.1 per cent.

In Europe, the UK's FTSE-100 and France's CAC 40 returned 7.5 per cent each, Germany's DAX posted a 7.3 per cent return, and Switzerland delivered a 4.3 per cent return. Japan's Nikkei 225, Asia's bellwether market, posted a 7.6 per cent.

In big nations, Australia and Canadian markets were the exceptions with double-digit returns of 23 per cent and 12.5 per cent respectively.

China's Shanghai Composite was the only index "" and an exception in the emerging markets and global portfolio of stocks "" to end 2004 in the red with a loss of 15.4 per cent.

The MSCI-EM, an index emerging market equities tracked by Morgan Stanley Capital International, has ended 2004 with a gain of 13.23 per cent in local-currency terms.

Thanks to the secular decline in the US greenback throughout the year, the index has posted even a bigger return of 22.448 per cent in dollar terms.

Meanwhile, an MSCI index of emerging markets in Asia has posted a meagre return of 5.1 per cent during the year.

MSCI indices are used by fund managers worldwide to benchmark the performance of their funds, and also to determine the relative weightages of the sectors and asset classes in their portfolios against the components of these key indices.

Among Asian indices, Indonesia's Jakarta Composite has delivered a whopping 44.4 per cent in 2004. This was followed by Sri Lanka's All Share index, which returned 41.9 per cent.

Pakistan's Karachi 100 is at number three with a gain of 39.7 per cent, followed by Philippines' PSE Composite (28.0 per cent), Australia's All Ordinaries (23 per cent), Singapore's Straits Times (17.4 per cent) and Malaysia's KLSE Composite (13.6 per cent). Hong Kong's Hang Seng with a gain of 13.2 per cent barely outperforms the Sensex, which returned at 13.1 per cent.

A wider survey of equity returns in Asia and in other markets around the world shows that the Sensex ended at the 9th position within Asia, and 25th overall. In the Australasian region, the two indices to post single-digit growth were Nikkei (7.6 per cent) and Taiwan's Weighted (4.3 per cent).