NEW YORK - Emerging-market stocks will drop as much as 15 percent this year as earnings miss estimates and global growth slows, said Devan Kaloo, who oversees $22 billion at Aberdeen Asset Management Plc.
Kaloo, Aberdeen's head of global emerging markets, said he was holding fewer Chinese stocks than were represented in the benchmark MSCI Emerging Markets Index because the government's stimulus program may lead to a banking crisis. Kaloo said he's "overweight" on stocks in Mexico, India and Turkey, "neutral" on Brazilian equities and "underweight" in Russia.
"The markets will see a correction this year," Kaloo, whose Aberdeen Emerging Markets Institutional Fund has beaten 93 percent of competitors in 2010, said. "People get over-optimistic and expect too much out of earnings and global growth."
The MSCI measure of 22 developing nations' stocks surged 75 percent last year, its best performance since its inception in 1987, as nations recovered from the first global recession since World War II. Kaloo's $1.2 billion fund climbed 77 percent in 2009 and has returned 2.3 percent this year.
Greek Prime Minister George Papandreou said on Tuesday that if the turmoil in his country "metastasizes" it "could create a new global financial crisis with implications as grave as the US-originated crisis two years ago". Stocks plunged worldwide after the collapse of Lehman Brothers Holdings Inc in September 2008 froze credit markets and caused global trade to plummet.
'Major imbalances'
MSCI's emerging-markets index has dropped 0.3 percent to 986.15 this year.
"The credit crisis of 2008 hasn't been resolved yet," said Kaloo, who is based in London. "There are still major debts that need to be paid down and major imbalances in the global economies that need to be corrected."
China's 4 trillion yuan ($586 billion) stimulus package, coupled with record bank lending in 2009, helped the benchmark Shanghai Composite Index rally 80 percent last year. The gauge has dropped 6.4 percent in 2010.
"From a stock-picking perspective, we can find better opportunities" than China, he said.
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