Emerging Market Value Analysis – July to August


Emerging markets generally fall fastest in times of turmoil. There has been trouble brewing in markets this last month. This is why it’s vital to select markets and shares that offer good value when investing in emerging markets.

One way we keep track of value is to follow the analysis of our friend, Michael Keppler. Michael continually researches international emerging stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return. He compares each emerging stock market’s history.

From this he develops his Good Value Emerging Stock Market Strategy. His analysis is rational, mathematical and does not worry about short ups and downs.

He is in my opinion one of the best market statisticians in the world and numerous very large fund mangers use his analysis to manage funds. In January, his company, Keppler Asset Management, was, for the third consecutive year, named Best Fund Company in the Fund Specialists’ category by Capital, a leading German business magazine. Keppler’s firm was one of only six out of 100 companies tested that received the highest five-star rating based on an independent evaluation of fund quality, management, and customer service by Feri Rating & Research and Steria Mummert Consulting.

Once a month we share Michael’s emerging market analysis with you.

Here is a summary of Keppler’s current comments on recent developments & outlook in international emerging equity markets.

Recent Developments & Outlook Emerging Markets equities continued their recent string of far above-average monthly returns before problems in connection with US mortgage junk bonds.

I refuse to use the euphemism “sub-prime”—brought down stock prices from their daily all-time high reached just one week before, on July 23rd.

Nevertheless, in July, the MSCI Emerging Markets Total Return Index (December 1988=100) advanced 5.3 % in US dollars and 3.9 % in euros.

Both numbers reflect new end-of-month all time highs.

Year to date, the MSCI overall Emerging Markets benchmark is up 23.8 % in US dollars and 19.2 % in euros. The US dollar has lost 3.7 % during the first seven months of this year versus the euro to 1.3689.

Of the three major regions, Asia gained 7.8 %, Europe, Middle East and Africa (EMEA) gained 3 % and Latin America 1.4 % in July.

Year to date, Latin America markets continue to lead.

The MSCI EM Asia Index is up 23.8 in dollars and 19.2 in euros.

MSCI EM Europe Middle East Africa Index is up 12.2% in dollars and 8.1% in euros.

MSCI EM Latin America Index up 28.8% in dollars and 24.1% in euros.

In July, seventeen markets included in the MSCI Emerging Markets Index rose, Hungary was unchanged, and nine markets declined.

Turkey (+15 %), Thailand (+14.3 %) and Peru (+13.6 %) led this month’s winners’ list.

Sri Lanka (-8.7 %), Jordan (-4.5 %) and Mexico (-4.1 %) performed worst in July.

Year to date, twenty-five markets rose, two declined. Peru was in the lead with a return of 89.6 %. Turkey (+52.1 %) and Thailand (+39.5 %) came in second and third.

Sri Lanka (-17 %), Jordan (-0.4 %) and Russia (+1.8 %) performed worst during the first seven months.

The following table shows how the Emerging Markets Top Value Model Portfolio compares to the MSCI Emerging Markets Index as of the end of July:

  PBV PCE PE DY (%) CERoE (%) RoE (%)
Top Value Portfolio 2.4 9.3 16.1 2.7 25.9 14.9
MSCI EM Index 2.8 10.7 17.2 2.1 25.7 16.0

There are no changes in our performance ratings this month. The Top Value Model Portfolio contains the seven national MSCI markets of Brazil, Korea, Malaysia, Poland, Taiwan, Thailand and Turkey at equal weights.
According to our performance ratings, these markets offer the highest expectation of risk-adjusted returns.

SELL CANDIDATES (Low Value) Argentina, Egypt, India, Indonesia, Mexico, Morocco, Pakistan, Peru, South Africa.

NEUTRALLY RATED MARKETS Chile, China, Colombia, Czech Republic, Hungary, Israel, Jordan Philippines, Russia, Sri Lanka, Venezuela.

For more details on Keppler’s analysis, contact Roderick Cameron at 1-212-245-4304 or email roderick.cameron@kamny.com

You can get ideas on shares in these top value emerging stock markets from Thomas Fischer at Jyske Bank at Fischer@jbpb.dk

Jyske Bank is the second largest Danish bank with 450,000 domestic clients, 35,000 international clients, USD 23 Billion in total assets, and a Moody’s rating of AA1. Jyske has over 35 years’ specialization in private banking and Denmark is ranked by Moody’s as the safest country in the world to have a bank account in.

Jyske Bank uses a good value system as well and their affiliated fund management company has been rated #1 by Morningstar. They use this value system to help us select shares for Multi-Currency Portfolio Educational Tracking Service. This has worked pretty well. In 2006 the mainly equity portfolios we tracked rose 42.93% (Emerging Market) and 114.16% (Asia Emerging Market) in a year. This year the five portfolios we track are up in the past nine months:

Portfolios 2007 Dec 29 Mar 27 June 28 Aug 10
Swiss Samba 8.10% 16.15% 44.80% 38.00%
Emerging Market 15.11% 12.81% 54.31% 61.27%
Dollar Short 12.91% 20.12% 33.81% 29.48%
Dollar Neutral 7.94% 16.58% 37.64% 29.13%
Green 34.77% 86.86% 178.28% 189.13%

You can learn why this performance has taken place in a sixteen page email report about how 13 economic forces now clash to shape investments market ahead that show the rewards and the risks. The report also outlines the five new Multi-Currency Portfolios we are tracking in our Borrow Low-Deposit High Multi-Currency Sandwich Educational Service. Details are at http://www.garyascott.com/catalog/bldh

At our upcoming IBEZ in N.C., we will update our latest multi currency portfolios and much more. Join us September 14,15,16, 2007 in North Carolina, http://www.garyascott.com/nccourse

Or come to Ecuador November 9-11. See http://www.garyascott.com/catalog/IBEZec/

Until next message, may all you global investments be good.

Gary


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