Emerging mkts may head 20-30% higher in 2010: BlackRock

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Investment firm Blackrock is betting on Russia as the best way to position for a global economic recovery, while predicting emerging equities will build on this year's rally with another 20-30% upside in 2010.

Blackrock's 175 million-pound emerging markets fund, managed by Daniel Tubbs, has Russia as its biggest overweight, followed by fellow-BRIC Brazil. It has gone underweight China and India, following the large rallies in these markets earlier this year.

Tubbs said valuations in Russia and central Europe do not reflect the improving growth picture for these economies -Russian stocks, despite a 120% rally this year are trading 7.5 times 2010 earnings, about half the level of China.

The fund's benchmark, the MSCI emerging index trades 13 times 2010 earnings.

"Our largest overweight is Russia. The Russian market is a proxy for the oil price and the expectation is oil prices will rise. Within Russia we are overweight the energy sector."

The economy should rebound 5-6% in 2010 from a fall of up to 8.5% in 2009, inflation is easing, industrial output is rising and interest rates are down, he noted.

"From that perspective we like Russia. There could be more rate cuts to come while other (emerging) countries are thinking of the next (rate) moves as being up not down," he added.

Tubbs has oil firm Rosneft in his top 10 picks as he expects the firm to gain from plans for a preferential tax regime for oil firms operating in east Siberia.

Tubbs also likes central Europe, which has lagged broader emerging markets' performance due to banking problems, current account deficits and reliance on Western Europe for exports.

The Prague and Warsaw markets have risen just 30% year-to-date versus over 70% gains for the MSCIEF.

"In (Poland, Hungary and Czech Republic) where we had zero exposure until recently, we now have substantial exposure. Those are a few of the countries which offer considerable upside from here," Tubbs said. "They are laggards compared with others."

Tubbs is underweight Asia and most of South America but has some holdings in the frontier markets of Qatar and UAE which he says still trade cheaply and have not recovered from 2008 falls.

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