As popular corporate buzz words go, “emerging markets” makes almost every boardroom’s top ten. So it is strange to hear that Aabar, the Abu Dhabi investment vehicle, has sold its stake in Banco Santander’s Brazilian unit, and may buy a stake in telecom operators in the US or Europe.
But is selling out of emerging markets and buying into developed ones such a bad idea? The “buy low, sell high” rule is on Aabar’s side. Brazil’s main Bovespa index trades at over 13 times company earnings, while the S&P Euro350 telecom index is valued one-third less. And while the Bovespa is flirting with all-time highs and may yet prove to be an incipient bubble, the European index is still one-quarter below its peak. Furthermore, the strong appreciation of the Brazilian real over the last two years has inflated prices for foreigners, and brought with it a new tax on foreign capital inflows.
Of course, developed nations generally have lower growth prospects, but a degree of caution from Aabar and its peers is understandable, particularly when the Gulf region’s banking system has not yet bottomed out. Indeed, the first nine months of the year saw Abu Dhabi Commercial Bank alone record impairments of more than $700m. And monetary policy remains focused on stabilising financial institutions rather than combating inflation, notes the Economist Intelligence Unit.
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