We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.
The Chinese government’s repeated stock market intervention attempts over the past several weeks have been remarkable, and obviously antithetical to the country’s move toward a more laissez faire corporate environment.
Emerging Market stocks are probably the cheapest equity subgroup in the world today, trading at 13.0x our 5-Year Normalized EPS estimate—much lower than that of foreign Developed Markets (17.6x) and the S&P 500 (21.3x). But, EM stocks have languished near these valuation levels for almost three years.
While we expect an eventual break in this relationship, today Emerging Market equities are following, fairly tightly, the cycle of industrial commodities—a cycle that rolled over (on a secular basis, we believe) in 2011.
As a follow up to a 2012 Special Study, we examine the growth in Electronic Payment Systems. Global competition in the industry has significantly heated up, as more countries are setting up their own national payment systems, relying much less on the “big four” global giants.