Reviled titans are ready to strike back

Jeremy Thomas I get the feeling the developed world's stock markets are forming a massive, powerful coil that will soon be expelled in the mother of all bull runs.

This seems a counter-intuitive thing to say, given the grim pall that hangs over the globe, but think about it: three years of extreme economic contraction has enabled the best-managed enterprises to entrench themselves at the expense of the hamstrung also-rans whose leaders weren't able to prepare for the worst.

It follows that there is a supremely strong pod of under-appreciated multinationals out there, spurned as investors chase visions of growth in emerging markets. One such darling of the moment is Johnson & Johnson, but the very fact that its name is being bandied about means it is probably already fully valued by now. But you can be sure the analysts have fingered others just like J&J: packed with globally branded goods and services that don't depend on a moribund domestic market to make the big bucks.

For those keen on surfing the momentum created by the surge of popular interest in developing countries, it is fascinating to see where the flow of international money is going.

First, Africa. Research by Imara this week shows that, in US dollar terms, Kenya is the best performing market on the continent in the year to date, up 31.75%, followed by Uganda (+27.42%). Zimbabwe, Malawi and BRVM are down for the year, while Botswana is flat. (BRVM, as a matter of interest, stands for Bourse Régionale des Valeurs Mobilières - a regional stock exchange based in Abidjan that serves the West African markets of Benin, Burkina Faso, Guinea Bissau, Côte d'Ivoire, Mali, Niger, Senegal and Togo.)

While fund managers ignore the merits of Coca-Cola or Microsoft, they're piling in to commodities. If they can't get hold of illiquid stocks representing the wealth of cocoa, tea, tobacco, sugar, copper, diamonds, gold and oil in Africa, they hunt them down in the derivatives market. The craze for raw goods has been blamed for sending oil and food prices to record highs, prompting riots in some developing countries.

Outside Africa and commodities, investors this week made a beeline for Indian and Chinese equities (and emerging-market bonds), according to EPFR Global. The funds tracking agency said investors expect another flood of money onto the market soon from the US Federal Reserve, which would further stimulate the chase for returns from sources outside developed markets.

Close behind Asia as the preferred investment destination is South America, with equity funds in Chile, Colombia and Peru sucking in cash.

US investors, according to a marketwatch.com poll, prefer using exchange-traded funds to access exotic markets. The PowerShares ETF has about 20% of assets in China, and around 10% each in Brazil and SA. The iShares fund has 60% of its assets split between China and Brazil.

Meanwhile, emerging-markets fund manager Ashmore this month reported a 36% rise in full-year profit, boosted by a sharp increase in investor appetite for its fixed-income and currency products (which include SA bonds).

The flamboyant Mark Mobius, a self-styled emerging markets guru, said a few weeks ago that his Templeton Asset Management sees big bargain-hunting opportunities in Vietnam and Romania due to good growth prospects.

Mobius reckons there isn't a bubble forming in the emerging economies. Others will disagree, no doubt, while quietly building fat stakes in the reviled titans of the Dow, FTSE, Nikkei and Dax.