Emerging Equity Markets


Emerging Equity Market Value Analysis – December 2007 – January 2008

Emerging equity market values are the best long term indicator of where to invest in the emerging sector.

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 managers 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 had their fifth consecutive year with double-digit returns. In December 2007, the Morgan Stanley Capital International (MSCI) Emerging Markets Index (December 1988=100) gained 0.4 % in US dollars and 0.7 % in euros.

2007 was the seventh calendar year in a row in which Emerging Markets have outperformed the developed markets.

Last year, the Emerging Markets benchmark gained 39.4 % in US dollars and 25.7 % in euros. This compares to a total annual return of 9 % in US dollars and a loss of 1.7 % in euros for the MSCI World Index of the developed markets in 2007.

Over the last seven years ending in December 2007, the Emerging Markets index delivered a total return of 341 % in US dollars and 183 % in euros, while the Major Markets Index gained 45.8 % in US dollars and, due to the weakness of the US currency versus the euro, even lost 6.3 % in euros.

Among the regional indices, Europe, Middle East and Africa (EMEA) was the best performing region in December (+1.5 %), Latin America gained 1.3 % and Asia lost 0.5 %.

Latin America which with a total return of 50 % was the best performing region in 2006 came in as the best performing region again in 2007 with a 50.4 % gain.

Asia was not far behind with a 41.1 % gain. And, strangely enough, EMEA’s 28.5 % return made this region an “underperformer” due to the high hurdle — a benchmark return of 39.4 %.

Performance numbers are in US dollars if not mentioned otherwise.

Fifteen markets closed higher in December and twelve markets declined.

The three top performers of the month were Egypt (+10.2 %), Malaysia (+6.5 %) and Jordan (+4.7 %).

Argentina (-4.9 %), China (-4.4 %) and South Africa (-3.9 %) performed worst last month.

As for the calendar year 2007, twenty-five markets included in the MSCI Emerging Markets universe achieved positive returns.

There were only two losing markets in 2007.

The highest total returns were recorded in Peru (+94.4 %), Brazil (+79.6 %) and Turkey (+74.1 %).

Last year’s laggards were Sri Lanka (-13.6 %), Argentina (-4.0 %) and Venezuela (+3.1 %).

The Emerging Markets Top Value Model Portfolio, which invests according to the Top Value Strategy and assumes index returns for each national market included in the strategy, last month gained 1.4 % in US dollars and 1.8 % in euros.

In 2007 the Emerging Markets Top Value Model Portfolio advanced 43.7 % in US dollars and 29.6 % in euros outperforming its benchmark by 4.3 and 3.9 percentage points in US dollars and euros, respectively.

There are several changes in our performance ratings this month. Israel is upgraded to “Buy” from “Neutral”. Brazil is downgraded to “Neutral” from “Buy”.

In addition to Brazil , there are four more changes to “Neutral”: Mexico , Pakistan , Peru and South Africa are upgraded to “Neutral” from “Sell”.

China is downgraded to “Sell” from “Neutral”.

Brazil had been rated “Buy” during the entire history of the MSCI database starting in December 1988 and was added to the Top Value Strategy when the MSCI Brazil Total Return index stood at $17. Brazil now exits the Top Value Strategy at an index level of $684 — a total return of 21.6 % p.a., beating the benchmark return of 15.0 % by 6.6 percentage points compounded annually, basically through holding the MSCI Brazil Index for 19 years.

The Top Value Model Portfolio currently contains the seven national markets of Israel , 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.

Our analyses show that companies in the Emerging Markets as measured by the MSCI Emerging Markets Composite Index have never been more profitable at any time since December 1988, when we started to collect data.

While Emerging Markets have now become slightly more expensive than equities in the developed markets, aggregate earnings growth expectations of 14.9 % according to consensus I/B/E/S

numbers continue to favor emerging over major markets equities, where earnings are expected to grow by 11.1 %.

Based on our calculations, the Emerging Markets Top Value Portfolio offers a valuation advantage of around 20 % compared to the MSCI Emerging Markets Index.

SELL CANDIDATES (Low Value) China , Egypt , India , Indonesia , Morocco ,.

NEUTRALLY RATED MARKETS Argentina, Brazil, Chile, Colombia, Czech Republic, Hungary, Israel, Jordan, , Mexico, Philippines, Pakistan, Peru, Russia, South Africa, 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 bank accounts.

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.

Here is the final 2007 one year performance of the portfolios we created and tracked with Jyske Bank and excerpts from the 2008 Portfolio Update #2 from our Multi Currency Educational Subscription.

“Portfolios 2007 Oct 31

Swiss Samba 53.32%

Emerging Market 122.62%

Dollar Short 48.19%

Dollar Neutral 38.67%

Green 266.30%

However the 2008 portfolios we are now tracking have not been immune from the 2008 turmoil although the green portfolio continues to surge ahead.

See why this green portfolio continues to excel in downturns. Learn how to see and learn from the performance of these portfolios at http://www.garyascott.com/catalog/bldh

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

Gary

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