Friday, May 26, 2006

emerging markets

[9/15/06 investwise] [Says Price Headley] The general consensus for many economists is that Brazil, Russian, Inda, and China will combine to be the prevailing economic powerhouses of this century. They all have GDP's that continue to soar and they've signed trade agreements that assure economic ties for years to come.

One of the main reasons that the BRIC's (Brazil, Russia, India, and China) have potential to be the economic powerhouse of the 21st century is their recent adoption of global capitalistic economies. Goldman sachs reported that BRIC economies currently are responsible for 20% of the world growth in GDP. That number will swell to 40% in 2025.

[7/25/06] Morningstar asked international fund managers whether they have been finding bargains in emerging markets after the decline. The answer? No.

[7/9/06] David Herro of Oakmark International writes "Commodities, metals, energy, real estate, global small caps, cyclical stocks, emerging markets… what do they all have in common? All of these asset classes have experienced strong price increases in the past three to five years. In the meantime some of the most secure, profitable, and best run businesses in the world have experienced poor price performance. To us, this spells value. We continue to be enthusiastic about the opportunities we are finding in the forgotten asset class of large, blue chip global companies. About the other asset classes, we must warn: what goes strongly up, also can fall down."

[5/26/06] Schwab has gone neutral on emerging markets, which for moderate portfolios is 0% exposure. "This is the third time in the past three years we've moved to neutral. After the prior two, we ultimately went back to an overweight within several months. It's too soon to say whether we're on that same path again, but for now the risks are ample enough to justify no exposure."

[5/11/06] It is at times like this that contrarian commentators start to get nervous. James Montier, the Dresdner Kleinwort Wasserstein strategist, is most concerned about emerging markets. He points out that emerging markets have risen 225 per cent since 2003, while developed markets are up 87 per cent. Emerging markets now trade on a valuation discount to developed markets of just 15 per cent, half the post-1995 average.

Furthermore, US mutual fund investors are putting three times as much money into emerging markets as they were in 1993, just before a series of crises in the sector. On average, when mutual fund investors are investing heavily in emerging markets, subsequent three-year returns have been 1.7 per cent; after they have sold, three-year returns have been 15 per cent. The omens do not look good.

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