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Emerging Market Investing:


I’ve been threatening to say something about this topic for several weeks.

 

Just a few brief points:

 

  • The case for emerging markets is very strong and very valid but it is a long term proposition
  • Any survey of emerging market indices over the last decade demonstrates the considerable volatility of this investment theme
  • A particular danger for retail investors is the classic value trap; an EM index rises 50%, 70% in a year and retail investors pile in. The next year the index falls 50%, 70% and retail investors pile out chalking up the big losses and disappointments that always come from buying high and selling low
  • The experience of foreign portfolio investors in China over the last 5 years has been very disappointing despite Chinese GDP growth of 8% plus

 

 What is to be done?

 

  • Take a long term view, be patient. In great part Emerging Market investing is about demographics and the creation of a middle class in places like China, India and Latin America
  • A constructive investment theme may be to focus on the consumer economy of emerging markets which in part can be accessed through local consumer facing companies and in part through investments in western companies selling into EM consumer markets
  • Some examples: Yum Brands (fast food), various “Luxury goods” companies (not a sector I personally like). Many luxury goods companies, large (LVMH) and small are finding increasingly that EM consumers are becoming their single biggest demographic. Additionally, we have a whole range of industrial materials, metals and mining companies that don’t deal with consumers directly but supply the material for the infrastructural development demanded by a rising middle class
  • Also worth looking at are soft commodities, foods such as vegetable oils and grains and fertilizers (e.g. New Britain Palm Oil, MP Evans, Potash, Sirius Minerals)

 

  Walter is the author of the forthcoming Thematic Investing (to be published by Searching Finance 2012)


To follow Walter's blog, goto:


http://thematicinvest.wordpress.com/

Published in News and Views
Monday, 26 December 2011 10:00

Africa's growing middle class

Published in News and Views
Writing in The Observer (14.08.2011) John Vidal described the outcome after oil was discovered in Ecuador's rainforest:

When large reserves of oil were discovered under Yasuní national park, Ecuador offered the world a choice: give us money and we will not allow drilling. Now $60m must be found by December...

Professor Edwin Dolan, a longtime researcher of economic and environmental issues, and author of the forthcoming book: There Ain't No Such Thing As A Free Lunch - A Liberterian Perspective On Environmental Policy, comments:

"Ecuador's dilemma over oil development perfectly illustrates the TANSTAAFL principle.

Oil revenue isn't a free lunch for Ecuador, which will pay through destruction of part of its environmental heritage, and very likely pay again through corruption spawned by oil wealth.

Meanwhile, the U.S. policy of keeping oil prices low in the name of "affordable energy" makes the problem worse by encouraging consumption.

Trying to make something look free by pricing it below opportunity cost just means paying more in the long run. If Ecuador could be depended on to keep its promise to leave the oil in the ground (a big "if"), raising the U.S. gas tax and using part of the proceeds to give Ecuador the support it wants to preserve the rain forest would be a win-win situation.''

Published in News and Views
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