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Updated by Douglas Johnson on Sep 15, 2017
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Emerging Markets | Bourse Performance 2016

We highlight the top-ten performing emerging markets in calendar year 2016. All data is on price return basis in US dollar terms through December 30. Note: Local index returns may vary somewhat from the MSCI indices used here because of different constituent lists and exchange-rate issues. Past performance is not an indicator of future results.

Source: http://www.cranganore.com

1

Brazil | 61.3%

Brazil | 61.3%

Who knew? In 2016, Brazil weathered a severe economic downturn and a presidential impeachment to score as the top-performing market worldwide. Outsized strength in Sao Paulo-traded equities may in part be attributed to pools of domestic liquidity being put to work for long-term benefit. Investors are confident that the government is serious about reform, including fiscal consolidation, paving the way for an even more vibrant private sector. The economic backdrop should eventually prove to be stunning; we will not see those green shoots until at least 2018.

2

Peru | 53.8%

Peru | 53.8%

These gains defy logic. The economy is heavily geared to copper and gold; the nation faced a heated presidential election in the first half of the year. Amid GDP growth likely to exceed 4.0% in 2017, the key message now is market resiliency. One reason is that the new president is a former Washington insider with the mettle to challenge arbitrary US policies. Another may be cozy ties between Lima and Beijing, making the nation impervious to a failed Trans-Pacific Partnership. Going forward, Peru is one of the few nations in the region that will not face a federal election over the next two years.

3

Russia | 48.9%

Russia | 48.9%

In the wake of a bounce from historic lows, investors in Russian equities continue to celebrate. Unusual gains in the last two months of the year can be attributed to the better tone in oil markets, given the size of the oil sector in the Russian economy. But there may be more to the story, including the notion that Western nations are growing weary of the Ukraine-related embargo. Nonetheless, we remain skeptical of broad stock-price durability. Answers to questions about relative industrial competitiveness are too selective, if not outright elusive.

4

Hungary | 32.3%

Hungary | 32.3%

Investors are drawn to Hungary because of its vibrant export backbone, despite uncertain growth in core European economies. About 90% of GDP can be attributed to exports, which are strongly tied to the auto-parts supply chain. Investors are also encouraged by a strong risk assessment at the national level; the country is viewed as investment grade by the major credit agencies. We expect to see positive surprises here. In mid-December, the government revised economic growth forecasts upward to 4.1% in 2017 and 4.3% in 2018 due to higher wage-growth expectations.

5

Colombia | 23.9%

Colombia | 23.9%

Colombia saw a high degree of stock-market volatility in 2016 because the bourse is dominated by Ecopetrol and interest-rate sensitive banks. Both sectors were in play. International developments impacted the oil sector and US interest-rate policy had spillover implications for local financial institutions. Company-specific fundamentals were further compounded by a narrowly-rejected and then revised-and-accepted peace agreement between the state and rebels. Importantly, equities saw the bulk of their upside in the last two months of the year, alongside a healthier oil price.

6

Thailand | 23.0%

Thailand | 23.0%

Thailand fooled a lot of savvy analysts in 2016, with stock-market gains delivered well above expectations. Most of that upside was generated in the early part of the year, in tandem with surprise buoyancy in the construction and tourism sectors. But the death of the king in October deflated lingering optimism for the year ahead. Analysts are now focused on general economic malaise relative to other economies in the region. The World Bank anticipates that Thailand will see 2.4% growth in 2017, materially below the next lowest figure of 4.5% for Malaysia.

7

South Africa | 15.1%

South Africa | 15.1%

Despite the pullback in the second half of 2016, Johannesburg-traded stocks still delivered better-than-expected returns. A key reason was the depressed rand and the spillover impact on commodity-based exporters. A weak currency can support profits; South African companies earn their revenue in dollars, but pay their costs in rand. Yet even expectations of better global markets for South African exporters had little impact by year-end. Investors express growing concern over political in-fighting. That issue helped to crystallize a credit-rating downgrade in November.

8

Indonesia | 14.8%

Indonesia | 14.8%

Jakarta-traded stocks were upended in the fourth quarter by concern that new US trade policies will undermine the export sector and impact currency markets. One top-tier Wall Street firm even anticipates that Indonesia will be a “loser” under Trumponomics. With growth expected to be better than 5.0%, we believe the economy can withstand those international headwinds. One reason is burgeoning household consumption. Another is that the government can use proceeds from a successful tax-amnesty program to ignite infrastructure spending.

9

Taiwan | 14.8%

Taiwan | 14.8%

Even with lackluster economic growth in the 1%-to-2% range, Taipei-traded equities have held up impressively. A key reason is the lower oil price; the island economy imports its entire hydrocarbon requirement. Taiwan-based companies are also benefitting from accelerating global demand for internet-related devices, both on a primary and outsourced basis. Among other points, Taiwan is a major player in the iPhone supply chain. We expect that investors will be cautious over the months ahead. There may not be enough growth cushion to withstand a trans-Pacific trade war.

10

Chile | 13.2%

Chile | 13.2%

In 2016, Santiago-traded stocks benefitted from subdued local-currency interest rates and buoyant equity markets elsewhere in the region. Yet the national economy remains mired in prolonged commodity-related weakness. As a sign of the times, state-level copper royalties have collapsed to zero; there were as much as 2% of GDP in 2011. Cross-border investors are unnerved by the fiscal deterioration. Importantly, the stock market failed to react to better copper prices at year end, suggesting that the bourse will take future direction from stock-specific ideas.

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