Millendorfer says that while a repeat of this years’ returns is unlikely, on the back of heavy losses in 2008, performance is still attractive in the long term for nations like Russia, China and India, compared to likes of the US and Japan.
Since the beginning of 2009 the Russian Micex has risen by 120 per cent, with the Indian Sensex up 70 per cent and Chinese stocks in Hong Kong up almost 60 per cent.
Millendorfer says that while investors frequently tag Russia with its oil and gas reserves, there are other opportunities alongside energy, pointing to the likes of the telecommunications and banking sectors as areas of growth.
Millendorfer says that India’s resilience to the downturn has surprised many. Two of the reason cited for this is India being much less reliant on exports and the clear victory of the Indian National Congress in May 2009.
Millendorfer says: “After the election in particular, foreign capital inflows also surged. The large Indian stocks as represented by the BSE Sensex 30 are showing P/E multiples of 18-19 by now – a rather high price, even if the projected earnings growth of up to 20 per cent for 2010 can be achieved
“In part at least, many foreign equity investors invest mainly in top-of-the-line large cap stocks, as smaller ones are usually far too illiquid. Hence, they bid up prices for well-known large caps and in turn leave plenty of bargains in the small and mid-cap segment. Among the latter, many companies can be found that are consistently earning high returns on equity of 15-30 per cent and yet are trading at much lower earnings multiples than Sensex 30 stocks.”
Millendorfer says Chinese stocks look cheaper in comparison to India, despite them rising 150 per cent in the past 12 months.
“A number of observers have started to talk about an emerging bubble. A look at current and historical valuations, however, does not support this view. From a price-earnings as well as price-book perspective, Chinese equities are rather in neutral territory.”