Emerging Market Update


Emerging markets are growing much faster than major markets.

This fact has created great opportunity over the past four decades.  Emerging stock markets have risen about twice as fast as stock markets in mature economies with very little extra volatility or downside.

asian-economies

This does not mean we should, just invest headlong into emerging market stocks. We’ll see how this applies to Ecuador in a moment.

First let’s look at some emerging market facts.

Take India as an example.  India has been one of the more popular emerging markets and its currency, the rupee was just given a new currency symbol.

To create this symbol the Indian Government announced a contest last year with a prize of about $5,000   Here are some of the top shortlisted designs.

The winning design which is now the Official Indian Rupee Symbol was submitted by an IIT post-graduate D Udaya Kumar.

Here is the new sysmbol.

A recent Economist article “Whoopee for the rupee” tells about this new symbol for the rupee.

An excerpt (bolds are mine) says:  A new symbol for the Indian rupee, announced on July 15th, moved some to flights of fancy. A business newspaper suggested that it would “catapult the rupee into the company of four ‘elite’ currencies” which also have symbols. A minister claimed that it would somehow “further highlight the strength and robustness of the Indian economy”.  The IMF expects the economy to grow by over 9% this year, although double-digit inflation means that the rupee is losing purchasing power at an unusually rapid pace.

This article and the Reuters photo above from the article contains several seeds of information about the emerging markets.

Seed #1: The economy might grow at 9% this year.

Seed #2: The photo of all those people making up the rupee sign illustrates the fact that many emerging markets have a lot of people… huge populations.

Seed #3: The fact that anyone would think that the new symbol would have anything to do with economic and or currency strength shows a great deal of immature thought in government, the market place and the population.

More on these thoughts in a moment.

First let’s go to an even bigger emerging market, China.

Another Economist article excerpt from “Replicating success – Academic fraud in China” says:  CHINA’S president, Hu Jintao, speaks often and forcefully of the need to foster innovation. He makes a strong case: sustaining economic growth and competitiveness requires China to get beyond mere labour-driven manufacturing and into the knowledge-based business of discoveries, inventions and other advances.

Yet doing so will be hard, not least because of the country’s well-earned reputation for pervasive academic and scientific misconduct. Scholars, both Chinese and Western, say that fraud remains rampant and misconduct ranges from falsified data to fibs about degrees, cheating on tests and extensive plagiarism.

The most notable recent case centres on Tang Jun, a celebrity executive, a self-made man and author of a popular book,“My Success Can Be Replicated”. He was recently accused of falsely claiming that he had a doctorate from the prestigious California Institute of Technology. He responded that his publisher had erred and in fact his degree is from another, much less swanky, California school.

The implications of widespread academic misconduct could be great. Denis Fred Simon of Penn State University argues that growing evidence of fraud “calls into question the overall credibility of the entire scientific enterprise in China-and unfortunately feeds negatively into the related concerns about the safety of Chinese products and the integrity of information coming out of China.”

In practical terms foreign scientists may be deterred from China, as they worry about getting caught up in scandals. Early this year, after it was found that 70 papers on crystal structures submitted to an international journal by Chinese scientists had been fabricated, the Lancet medical journal called on China’s government to “assume stronger leadership in scientific integrity”. Measures taken so far, it suggested, had failed to get to the root of why some Chinese scientists lie.

Another direct cost may be felt by Chinese students looking for college places abroad. Admissions officials are suspicious of near-perfect scores on standardised tests and glowing recommendations from professors, which are common to many applications from China. The risk is that genuinely qualified students are turned away because of general suspicion about fraud.

The seed about emerging markets here is that many emerging cultures do not have a strong social, cultural infrastructure that will help it compete in the global economy.

China has another cultural demographic problem.  The population is huge.  Big populations make it much harder to gain sustainable environmental successes.

Big populations spread over vast distances are much harder to integrate than small populations confined to a small territory.

Just look at some of the greatest economic successes… Singapore… South Korea and Taiwan.

Look at the richest populations and highest living standards in Europe… Luxebourg… Denmark… Switzerland…  all small places and populations.

To help reduce this huge population, decades ago, China implemented a one child per family regulation that clashes with Chinese culture and has created a huge demographic rift called Bare Branches.

There is an academic book, “Bare Branches:The Security Implications of Asia’s Surplus Male Population” written by Valerie Hudson and Andrea den Boer that describes the causes of the high sex ratio in China and India.

This study also looks at the effects and future implications of the high ratio of men to women in these countries.

The average sex ratio worldwide 105 men for every 100 women. China and India have higher than average ratios that creates a large surplus of males.

In other words China and India have many more men than women.

China has a historical preference for sons over daughters.  This preference is increased by the one child per family policy that has been on the books for decades.

This cultural – legal clash has led to sex selective abortions, infanticide and infant abandonment.   The end result is unmarried males called “Bare Branches” who are prone substance abuse, gambling and violent crime. These en are more likely to be unemployed or underemployed, with little education and no permanent residence. They tend to congregate in migrant bachelor subcultures…. as in gangs.

These large and often violent gangs create security problems and lead to an increased recruitment into the military or police force, increased violence internally or globally.

Yet you’ll see in the small highly successful economies that the glass ceiling for women is much higher… still there in some cases… but nothing like in some of the emerging countries.

The point is… many emerging economies have cultural problems that will  make it hard for them evolve and compete in the global economy.  They will drown in their own success.  Numbers right now… may look great.. yet we have to look below the surface and be selective in the emerging markets where we invest..

Overall emerging markets still offer better potential than mature markets, but one must choose the correct markets with care… because there is always something we do not know… especially in emerging markets.

This is why seeking value is so important.   Value is the harmonious aspect of existence that wishes to fill every void.  Value is the ecstasy that harmonizes away the agony of imbalance.  Value means you are buying what is NOT in demand at a price lower than the object’s or share’s worth.

This is why once a quarter we look at an emerging equity market value analysis by Michael Keppler.

If you are a new subscriber learn about Keppler Asset management here.

Keppler’s latest analysis this July says:  After five consecutive quarters of rising stock prices, Emerging Markets equities retreated from their April highs.

In the second quarter 2010, the MSCI Emerging Markets Total Return Index (December 1988 = 100) lost 8.4 % in US dollars.

The euro, which had declined 5.7% versus the US dollar in the first quarter, gave up an additional 9.5 % in the last three months for a year-to-date decline of 14.6%.

It finished the second quarter at 1.2249. As a consequence, in euro-terms, the MSCI Emerging Markets Index advanced 1.2 % in the second quarter.

Year-to-date, the MSCI Emerging Markets Index declined 6.2 % in US dollars.

Again, due to the euro weakness in the first half of 2010, the Emerging Markets benchmark index gained 9.9 % in euros.

Of the three regional indices, Asia was down 5.2 %, Europe Middle East and Africa (EMEA) declined 13.4 % and Latin America lost 12 % in the second quarter.

In the last six months, the three regional indices lost 3.9 %, 8.0 % and 10.6 %, respectively. Performance numbers are in US dollars unless mentioned otherwise.

Six markets advanced and fifteen markets declined in the second quarter.

Indonesia, Peru (both up 4.2 %) and Colombia (+3.6 %) performed best.

Hungary (-30.2 %), Poland (-21.8 %) Russia (-15.6 %) came in last.

Compared with their levels at the beginning of the year, nine markets were higher and twelve markets were lower.

The biggest winners this year have been Indonesia (+14.7 %), Colombia (+14.3 %) and Thailand (+11.1 %).

Hungary (-21.4 %), Poland (-18.5 %) and Brazil (-15.4 %) have performed worst during the first half of this year.

In the second quarter 2010, 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, declined 14 % in US dollars and 5.1 % in euros, underperforming the benchmark by 5.6 percentage points in US dollars and by 6.3 percentage points in euros. It now stands at $ 21,704 and € 19,532 (December 1988 = 100). During the last six months, the Emerging Markets Top Value Model Portfolio declined 9.2 % in US dollars and gained 6.4 % in euros.

Again, this demonstrates that, in the first half of 2010, currency movements may have been more important than equity returns.

There were no changes in the Top Value Model Portfolio in the second quarter.

As of the end of June, it contains a combination of the nine “Buy”-rated markets Brazil, the Czech Republic, Egypt, Hungary, Poland, Russia, Taiwan, Thailand and Turkey.

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

Neutral value emerging markets are: China, Colombia, Israel, Malaysia, Mexico, Morocco, Peru, Philippines, South Africa.

Poor value markets are:  Chile, India, Indonesia and Korea.

So India may be celebrating a new currency symbol but its currency is crashing and its stock market is priced too high.  China may be the biggest emerging market value but its value is not a bargain.

One way for non US investors to tap into good value emerging stock markets is with the State Street Global Advantage Emerging market fund.

This is one of the many examples of a US company subsidiary that will not accept American investors.

State Street Global Advantage Funds (GAF) aim at above-average returns and below-average risk by high-valued exposure to global equity markets with below-average risk. Domiciled in Luxembourg, these funds are registered for public distribution in Germany and Austria.

They are managed by State Street Global Advisors (SSgA).  Keppler Asset Management Inc (KAM) is the investment advisor.

The Emerging Markets High Value Subfund focuses on attractively valued equity in the emerging markets. The objective of the fund is to outperform the Morgan Stanley Capital International (MSCI) Emerging Markets Index over holding periods of three to five years.

This fund manager was awarded the first-of-its-kind patent for stock selection using non-linear estimation.

Non US investors can get more data on the State Street Global Advantage Funds please see State Stree Global Advantage Information.

One way US investors can begin to find ways to invest in good value emerging markets is to look at the country and share holdings of the State Street Emerging Market Fund and then look for US registered funds, etfs that have a similar distribution… or look for adrs traded in the USA of the shares held.

State Street’s GAF Emerging market fund’s top share holdings as of June 30,2010 are shown asemerging market fund

This would only be the beginning step… a way to start zeroing in. You should still research any share you are considering to make sure that good value and prospect remain and that potential performance fits the parameters of your financial needs and situation.

There are seven good places to invest now.

#1:  Value Markets

#2: Multi Currency Spreads Increase Cash

#3: Emerging Markets

#4: Wellness

#5: Water Alternate Energy

#6: Truth & Cohesion

#7: Real Estate

Returns on emerging markets has the potential to outstrip almost any other investment so they deserve a place in most portfolios.  Just be sure to consider the risks and value  of each market and share before you invest.

I’ll share my current emerging markets favorites when I speak at Jyske Bank’s upcoming Global Wealth seminar in Copenhagen. I hope to meet you there.

See details on how to join Merri and me at Jyske’s bi annual Copenhagen seminar here Global Wealth Management Seminar.

Gary

How We Can Serve You

How to Have Real Safety in 2020

The most important investment you can make in 2020, is in yourself. 

Invest in more time.  Invest in less stress. Invest in greater security.That’s why four years ago we created the Purposeful Investing Course (PI) because when it comes to finances, there are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We invest to make our world a better place.

We should not invest for fun, excitement or to get rich quick, or in a panic due to market corrections.

The core model portfolio we teach in the PI Course rarely changes, but is highly diversified in thousands of shares around the world… so there is higher long term profits, less stress and greater safety.

The portfolio consists of 19 country ETFs.  During the four years since we created the Purposeful Investing Course and set up a $40,000 real time portfolio at Motif Brokers, we have held the same 19 shares and have only traded three times.

The portfolio started with $40,000 and has risen to $53,591 ($49,015 in shares and the balance in accumulated cash).

The portfolio did really well from 2015 to 2018, better than the DJI Index.  Then as the US dollar grew in strength it fell behind.

The chart below shows the actual results of thos portfolio compared with the S&P 500.

motif

 

This good value portfolio above is based entirely on good value financial information and mathematically based safety programs developed around investing models that date back 91 and 24 years.

The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets developed combining my 50 years of investing experience with study of the mathematical market value analysis of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers, such as State Street Global Advisers, use his analysis to manage over $2.5 billion of funds.

The Pifolio analysis begins with Keppler who continually researches international major 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 major stock market’s history.

Fwd: keppler

Michael Kepler CEO Keppler Asset Management.

Michael is a brilliant mathematician.  We have tracked his analysis for over 20 years.   He continually researches international major 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 stock market’s history.  From this, he develops his Good Value Stock Market Strategy and rates each market as a Buy, Neutral or Sell market.  His analysis is rational, mathematical and does not cause worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each BUY market.

This is an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any stock in that country is an attractive investment, so you do not have to spend hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally use.

70% is diversified into Keppler’s good value (BUY rated) developed markets: Australia, Austria, France, Canada, Germany, Hong Kong, Italy, Japan, Norway, Spain, Singapore and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

The Pifolio consists of iShares ETFs that invested in each of the MSCI indicies of theseall good value BUY markets.

For example, the iShares MSCI Australia (symbol EWA) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Australia Index which is composed mainly of large cap and small cap stocks traded primarily on the Australian Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Australia.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

The fact that the Pifilios are invested in all the shares of the MSCI Index in each good value market reduces long term risk.

When the US stock market bull ends, know one knows for sure how long or how severe the correction will be.

When the bear arrives, what will happen to global and especially good value markets?

No  one knows the answer to this question.

What we do know is that the equally weighted, good value market Pifolios have the greatest potential long term and that math based trailing stops can be used to protect against a secular global stock market correction when it comes.

My fifty years of global investing experience helps take advantage of numerous long term cycles that are part of the universal math that affects all investments.

What you get when you subscribe to Pi.

You immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last four years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

You also receive two special reports.

In the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  Then the cycle ended.  Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview.  He said:  Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!

I did well then, but always thought, “I should have invested more!”  Now those circumstances have come together and I am investing in them again.

The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.  The two conditions are in place again!

30 years ago, the US dollar rose along with Wall Street.  Profits came quickly over three years.  Then the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  The trends are so clear that I have created a short, but powerful report “Three Currency Patterns for 50% Profits or More.”   This report shows how to earn an extra 50% from currency shifts with even small investments.  I kept the report short and simple, but included links to 153 pages of  Good Value Stock Market research and Asset Allocation Analysis.

The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

This report sells for $29.95 but in this special offer, you receive the report, “Three Currency Patterns for 50% Profits or More” FREE when you subscribe to Pi.

Plus get the $39.95 report “The Silver Dip” free.

With investors watching global stock markets bounce up and down, many missed two really important profit generating events over the last two years.  The price of silver dipped below $14 an ounce as did shares of the iShares Silver ETF (SLV).   The second event is that the silver gold ratio hit 80, compared to a ratio of 230 only two years before.

In September 2015, I prepared a special report “Silver Dip 2015” about a silver speculation, leveraged with a British pound loan, that could increase the returns in a safe portfolio by as much as eight times.  The tactics described in that report generated 62.48% profit in just nine months.

I have updated this report and “Silver Dip” report shares the latest in a series of long term lessons gained through 40 years of speculating and investing in precious metals.  I released the 2015 report, when the gold silver ratio slipped to 80.  The ratio has corrected and that profit has been taken and now a new precious metals dip has emerged.

I have prepared a new special report “Silver Dip” about a leveraged speculation that can increase the returns in a safe portfolio by as much as eight times.

You also learn from the Value Investing Seminar, our premier course, that we have been conducting for over 30 years.  Tens of thousands of delegates have paid up to $999 to attend.  Now you can join the seminar online FREE in this special offer.

This three day course is available in sessions that are 10 to 20 minutes long for easy, convenient learning.   You can listen to each session any time and as often as you desire.

The sooner you hear what I have to say about current markets, the better you’ll be able to cash in on perhaps the best investing opportunity since 1982.

seminars

Tens of thousands have paid up to $999 to attend.

In 2020 I celebrate my 54th anniversary in the investing business and 52nd year of writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

In this special offer, you can get this online seminar FREE when you subscribe to our Personal Investing Course.

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years, the two reports and the Value Investing Seminar right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, the “Silver Dip” and “Three Currency Patterns For 50% Profits or More” reports, and value investment seminar, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Gary

Read the Economist articles

Whoopee for the rupee

Replicating success –  Academic fraud in China