Investment Value Emerges from Slow Growth

We need simple ways to find investment value as the global economy grows increasingly complex.  See an emerging investment value idea below.

Emerging Investment Values

One way is to look at the difference in value of developed versus emerging markets. Take the Chinese market as an example.  This chart shows that the Chinese share index has been falling over the past five years and is currently in a downwards mode.

yahoo chart chart

Yet this is a good value market.  It takes courage to invest in a market on its way down, but this can be a good way to find good value.

See the nine good value emerging equity markets below.

Once a quarter we review all developed multi currency equity markets through the Keppler Asset Management’s Global Market Value analysis.

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Here is the Spring 2014 Keppler Emerging Market Recent Developments & Outlook

After a poor start at the beginning of the year, emerging markets equities have regained some of their lost strength from last year. However, this was not enough to fully recover their losses suffered in January.

In the first quarter 2014, the MSCI Emerging Markets Total Return Index (December 1988 = 100) declined 0.5 % in both local currencies and in Euros and 0.4 % in US dollars. While the emerging markets benchmark was able to achieve a 3.4 % total return in local currencies over the last fifteen months, due to weak local currencies it lost 3.0 % in US dollars and 7.2 % in Euros over that period.

The Euro now stands at 1.3783 USD/EUR — almost unchanged from its year-end 2013 level of 1.3780.

Among the three regional indices, Asia declined 0.4 %, Europe, Middle East and Africa (EMEA) advanced 0.4 % and Latin America lost 1.8 %.

Over the last fifteen months, only Latin America shows a negative total return (-6.2 %), while EMEA is up 7.5 % and Asia gained 4.8 %. Performance numbers are in local currencies unless mentioned otherwise.

Fourteen markets advanced and seven markets declined over the last quarter.

Greece (+18.1 %), Indonesia (+13.1 %) and the Philippines (+11.1 %) performed best, while Russia (-9.7 %), China (-5.8 %), and Hungary (-5.6 %) did worst in the last three months.

Over the last fifteen months, eleven emerging markets advanced and ten markets declined.

Greece (+70.7 %) — which only entered the MSCI Emerging Markets universe at the end of November 2013 — Egypt (+28.4 %) and South Africa (+21.7 %) performed best, while Peru (-26.8 %), Hungary (-13.2 %) and Chile (-12.4 %) fared worst in the last fifteen months.

There was no change in our performance ratings last quarter.

The Top Value Model Portfolio contains nine markets — Brazil, China, the Czech Republic, Hungary, Korea, Malaysia, Poland, Russia and Taiwan — at equal weights.

According to our performance ratings, an equally-weighted combination of these markets offers the highest expectation of long-term risk-adjusted performance.

The following table shows how the Emerging Markets Top Value Model Portfolio compares to the MSCI Emerging Markets Index and to the MSCI Developed Markets Index at the end of the first quarter 2014, based on selected assets and earnings valuation measures:

keppler asset management chart

Click on image to enlarge.

Based on our valuation and return analyses, the emerging markets are now undervalued by 23 % versus the MSCI World Index, while the Emerging Markets Top Value Model Portfolio is now undervalued by 25 % versus the MSCI Emerging Markets Index and by a whopping 43 % compared to the MSCI World Index of the developed markets.

This bodes well with regard to potential outperformance over the next three to five years for the emerging markets in general and for our Emerging Markets Top Value Model Portfolio in particular.

Michael Keppler New York, April 14, 2014

ENR Asset Management agrees on China.

China the world’s second largest economy, is slowing in 2014.  Weak PMI data coupled with declining exports don’t support expectations of a strong recovery. The yuan is also weakening since February and property prices have started to cool. China, however, can absorb its problem loans and other credit challenges. We don’t expect a ‘hard landing’ in China and consider equities to be the cheapest in the world – down more than 50% since 2007. China might launch a stimulus spending program, which would be bullish for commodities, stocks and others risk assets domestically and abroad.

The global economy continues to grow in complexity.  Seeking value investments is a simple way to keep up.


Three days left to order Ecuador Mother’s Day roses!

Learn more about how to invest in China and in good value markets from Thomas Fischer at ENR Asset Management. Thomas Fischer

Join us with Thomas Fischer and ENR Asset Management in Montreal this October.  See details here.

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