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Horseman Hedge Fund Says Emerging Market Stocks, Bonds to Fall


Date: Friday, January 30, 2009
Author: Bloomberg.com

 Russell Clark, the portfolio manager at Horseman Capital Management LP whose emerging markets fund returned 14.6 percent last year, told clients that emerging- market stocks and bonds are likely to fall in 2009.

Low interest rates and stimulus spending will add to excess production capacity, resulting in poor company earnings, Clark said in a letter sent to clients last week.

“When I look at the macroeconomic data for the emerging markets that I cover, it seems to me that we are not going into an average recession,” Clark said in the letter, a copy of which was obtained by Bloomberg News. “In the 2000-2002 recession, we did not see house price declines, and we did not have a contraction in global trade. This recession is seeing both.”

The MSCI Emerging Markets Index slumped 54 percent last year as investors shunned riskier assets on concern the global economy was entering a recession and as commodity prices slumped from record highs. Horseman Capital, which manages $6.4 billion out of London, was co-founded nine years ago by John Horseman, Christopher Harrison and Mark Driver.

Hedge funds focused on emerging markets lost an average 36 percent in 2008, compared with the 18 percent loss of all hedge funds globally, according to Hedge Fund Research Inc.

“When it comes to individual stocks, I find it hard to find any that I want to buy,” Clark said in the letter. Carol Brown, a spokeswoman for Horseman Capital, declined to comment.

Brazil’s economy stalled in the fourth quarter as consumer demand declined and commodity prices plunged. Companies cut a record number of jobs in December as they scaled back production. The economy will grow 2 percent this year, the slowest pace since 2003, according to a central bank survey published on Jan. 26.

‘No Rebound’

“In many emerging markets unemployment is only beginning to increase,” Clark said. “We have yet to see any meaningful increase in the bad loans from emerging market banks. There can be no rebound in markets while we have contracting trade and a suspect banking system.”

While the MSCI Emerging Markets Index has gained 17 percent since falling to an all-time low in October, Clark said markets outside of equities “continue to indicate a weak growth outlook.”

Oil prices traded at $42 a barrel in New York, down 55 percent from a year ago, while copper futures were at $3,165 a metric ton in London, a 56 percent decline from 12 months ago.

The yield spread on emerging-market corporate debt over U.S. Treasuries has swelled to 24.10 percentage points from 5.9 percentage points in June 2008, according to Merrill Lynch & Co.’s Global Emerging Market Corporate index. The gap widened to a record 27.89 percentage points on Dec. 17 amid the rout in credit markets.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net