Emerging Market Value Update Dec. 2008


This is a summary through November 2008 of Emerging Market Value reviews of Michael Keppler’s market valuations.

Recent Developments & Outlook

Emerging Markets equities continued their recent downturn if only at a slower rate compared with their sharp  drops suffered in September and October.

Last month, the Morgan Stanley Capital International (MSCI) Emerging
Markets Total Return Index (with net dividends reinvested, December 1988=100) lost 7.5 % in US dollars.

The emerging markets benchmark declined 7.6 % last month.

During the first eleven months, the MSCI Emerging Markets Total Return Index dropped a whopping 56.7 % in dollars and  50.1 % in euros.

The euro gained a tiny 0.1 % versus the US dollar last month and now stands at 1.2689 (USD/EUR)  — 13.2 % below the 1.4620 it fetched at year-end 2007.

Again, no region was spared from the downturn last month: Asia lost 7.1 %; Europe, Middle East and Africa  (EMEA) was down 9.5 %, and Latin America declined 6.5 % in November.

Year-to-date, Asia is down 57.7 %, while EMEA and Asia lost 57.6 % and 52.9 %, respectively (performance figures are in US dollars unless indicated
otherwise).

Three markets advanced in November and twenty-one markets declined (We do not count Pakistan at the moment, since it has apparently stopped trading altogether.

Peru (+12.7 %), Colombia (+5.2 %) and China (+4.6 %) fared best in November.

Jordan (-23.2 %), Russia (-18.4 %) and Egypt (-14.5 %) performed worst last month. Year-to-date, Morocco (-14.6 %), Colombia (-31.3 %) and Israel (-32 %) fared best in relative terms, i.e. lost least.

The worst performing markets year-to-date were Russia (-71.7 %), India (-67.8 %) and Indonesia (-65 %).

There is one change in our performance ratings this month: Jordan is upgraded from “Sell” to “Neutral”. This decision is irrelevant for most investors, however, since it coincided with the elimination of Jordan from the MSCI Emerging Markets universe as of the end of November 2008.

The Top Value Model Portfolio  holds the seven “Buy”- rated markets Hungary, Korea, Poland, Russia, Taiwan, Thailand and Turkey at equal weights. According to our performance ratings, these markets offer the highest expectation of long-term risk-adjusted returns.

According to our performance ratings, these markets offer the highest expectation of risk-adjusted returns for long-term investors

SELL CANDIDATES (Low Value) Chile,  Colombia, Egypt , India , Morocco.

NEUTRALLY RATED MARKETS Argentina, Brazil, China Czech Republic, Indonesia, Israel, Jordan, Malaysia, Mexico, Philippines, Pakistan, Peru, Russia, South Africa, Sri Lanka, Venezuela,

Remember that the overall market value is just one of many filters we should use when we review value. The seven steps we use in our reviews include

#1: Are the shares traded in a good value market?
#2: Does the share trade at fair Price to Earnings and Price to Cash Flow ratios?
#3: Does the share pay a good value dividend?
#4: Do the share have a good value relative to their previous price?
#5: Does the company have rising earnings?
#6: Has the share price been rising?
#7: Is the company’s management good and is their product or service line in a wave of the future

Michael Keppler also reminds investors not to misinterperate the investment analysis implicit in the Country Selection Strategy. A country is BUY-rated based on the valuation levels reflected in the MSCI benchmark index of country. A BUY rating therefore does NOT imply that any stock in that country would be considered an attractive investment.

To invest according to the Country Selection Strategy it is necessary to
construct diversified, risk-controlled, representative country portfolios in
every BUY rated country, weighting each country approximately equally in the
overall portfolio. It is not appropriate to instruct a stockbroker to simply to select stocks in the BUY rated countries.

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

Regards,

Gary

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