1 / 8

Emerging markets on sale

Emerging markets on sale. Jim Jubak MSN Money Money.MSN.COM jjubak@microsoft.com 6 February 2009. The bear has taken a huge bite out of emerging stock markets.

chibale
Download Presentation

Emerging markets on sale

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Emerging markets on sale Jim Jubak MSN Money Money.MSN.COM jjubak@microsoft.com 6 February 2009

  2. The bear has taken a huge bite out of emerging stock markets • Since the 10/9/2007 top through the close on 2/4/09, the Dow Industrial Average is down 44%, the S&P 500 is down 46%, and the NASDAQ Composite is down 46% • No where in the world to hide: Brazil down 51%, Australia 60%, China 58% (as measured by EWZ, EWA, FXI ETFs)

  3. But in the long run emerging markets outperform with less risk • Emerging markets aren’t as risky as they were • Emerging markets provide more return for the risk • If you measure peak to peak or trough to trough gains on the MSCI Emerging Markets Index (EEM)--March 31, 2000 to Oct. 30, 2007--the gain on the emerging markets index is 168%. Trough to trough (or at least trough so far) the gain from the bottom on Sept. 28, 2001 to the Nov. 20, 2008 low close is 101%. • The comparable figures for the S&P 500 are peak to peak a 2.5% gain and trough to trough a 10% gain. • Volatility is higher but not that much higher. 60% loss for the MSCI Emerging Markets index versus 46% for the S&P 500 in the current bear.

  4. The bear is separating the chaff… • Chaff markets: Those with under-developed domestic banking systems, arbitrary and unpredictable economic decision making, one-sector economies, and inadequate reserves. • Chaff poster children: Ukraine (no reserves and dis-functional politics), Hungary and Romania (balance of payment and government deficits), Iceland (speculative excesses in financial markets), Ireland (economy less competitive globally than it seemed with EU subsidies running out) • On the chaff cusp: Poland, a replay of Ireland? (Collapse of zloty raises questions about extent of Polish miracle), Vietnam (Is this really a replay of China on a smaller scale) • Disappointments: Russia (where the government has decided to risk a recession rather than spend more reserves on stimulus) and India (where the central government just can’t get its infrastructure act together)

  5. …from the wheat • China where an authoritarian central government has shown a surprising ability to combine the same old, same old (big spending on infrastructure) with a few new tricks (increased healthcare and education spending) in response to an crisis in economic growth. Likely that growth decline will be no worse than a drop to 5% to 6% in 2009. (Granted from 11% in 2007). • Brazil where the economy has become surprisingly balance (not just a commodity exporter anymore) and a growing domestic middle class has created a consumer economy to go with rising exports of food, oil, and iron ore. • Canada, Australia, and South Africa where natural resource economies are riding the boom in emerging economy growth • Special call out to Chile where government has adopted rainy day fund for natural resource economy

  6. How to buy the wheat: ETFs • EEM—emerging market ETF • ECH—Chile ETF • EWZ—Brazil ETF • EWA—Australia ETF • EWC—Canada ETF • EZA—South Africa ETF • FXI—FTSE China ETF

  7. How to buy wheat: 10 individual stocks • BHP Billiton (BHP) • Central European Distribution (CEDC) • EnCana (ECA) • HDFC Bank (HDB) • Impala Platinum (IMPUY) • Itau Bank (ITU) • LAN Airlines (LFL) • Potash of Saskatchewan (POT) • Thompson Creek Metals (TC) • Vale (RIO)

  8. When to buy the wheat • China could bottom before U.S.—low for economy mid-2009. Can start dollar cost averaging in now or wait for more bad news on growth before investing lump sum • Most of other emerging market economies will bottom after U.S. Dollar cost average starting in mid-2009 with lump sum investing to wait until last quarter of 2009. • Remember a recovery in the U.S. stock market will probably pull money out of emerging economy stock markets.

More Related