December was a terrible month for the Eur-Asian markets. The worst market was Russia that suffered from the combination of the troubled relationship with Turkey and the sharp decline of the oil price. This resulted in a fall of 16% of the MSCI Russia index. Partly by lower equity prices but mainly the Rouble suffered. For the Turkish markets it was also a difficult time. The Turkish equity market tumbled by 12%. Further to the east there was China fighting its own demons. The markets lost almost 10% in the first two weeks, then there was a sharpe recovery of again almost 10%, to fall again in the last week of the month. India was the most stable market, but also a market which lost its upward momentum. We sold 50% of our stake in the Indian equity markets.
The current situation has led to ridiculously low valuation of the Russian markets. It’s clear Russia is facing many problems and weaknesses. Sanctions, trouble with one of its closest and most strategic friends, Turkey, and the very low oil price. However this doesn’t explain the extremely low valuations of their oil and gas companies in comparison with their European and American peers, especially when we take into account that, across the board, they perform even better than theirs peers. This because of the cost advantage of the low Rouble. For companies outside the oil & gas industry is even harder to explain.
China is back where it started one year ago. However the Chinese economy is still one of the fastest growing economies in the world. After a period of extreme valuations we now see more modest valuations with lots of space for growth.
Turkey is suffering from the problems with Russia and the war in Syria; both will harm the tourist industry. However they made a great deal with the European Union and the demographic fundamentals for economic growth are still stribg. The average P/E ratio of 10 is less than half of the valuation of the European stock markets. The 2016 expectations for all Eur-Asian markets is mainly extremely high volatility. The most important issues are the economic developments within the economy of China, the direction of the oil price and the situation in Syria.
Indian markets didn’t face the turbulence of the other TRIC countries. The Indian markets are without direction and we are missing a clear trend signal here. Our position in the Indian markets became more careful due to this. The Indian economy is performing above all expectations, during the third quarter the growth rate was 7.4%. By this India outperformed China. This picture can be continued for a long time. The main reason can be find in the demographics. Indian population is much younger than the aging population of China. This is a huge force in economic development.