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Old 10-21-2009, 06:33 PM
 
278 posts, read 448,526 times
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I know the US dollar is troubled, commodities are in a bull market, and there is a rising middle class in China and Brazil.

That said, emerging market stocks now have a 20% premium to developed markets. These markets combined are now larger than the Euro economies. The MSCI Emerging Markets index is 30% above its 200 day moving average.

Do Emerging-Markets Funds Have More Upside? These markets sure have some momentum going. But their history is one of political overhauls and central bank blunders. They are known to mismanage economic growth, and to restrict foreign capital flows, as Brazil recently did (http://www.brazzilmag.com/content/view/11334/1/ - broken link). Their stock markets are known as trading markets, not investing markets. And their population is susceptible to yearning for a better life in the US and Europe.

When you break down these stock markets, you find a heavy concentration in commodity producers and, ahem, banks. There is little else - their healthcare and consumer staples apparently come from American multinationals like PepsiCo and Johnson & Johnson. I can't imagine much of the "rising middle class" interacting with CNOOC or Vale.

So what we have, as I see it, is a great story about the spread of consumerism. The great story does not really connect to the companies involved in the great stock market performance. Valuations have run away (up 72% ytd; are earnings up that much?). I don't see any seismic shift in the emerging markets' domestic demand for products, or in locals investing rather than saving. I see Americans pessimistic, and investing abroad without looking before they leap.

I see a bubble in emerging markets - can anyone talk me down? If you agree, when do you think the bubble will burst? What will be the pin that pricks it? What will be safe from it?
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Old 10-22-2009, 02:05 AM
 
Location: US Empire, Pac NW
5,008 posts, read 11,925,363 times
Reputation: 4125
Quote:
Originally Posted by mtta View Post
I know the US dollar is troubled, commodities are in a bull market, and there is a rising middle class in China and Brazil.

That said, emerging market stocks now have a 20% premium to developed markets. These markets combined are now larger than the Euro economies. The MSCI Emerging Markets index is 30% above its 200 day moving average.

Do Emerging-Markets Funds Have More Upside? These markets sure have some momentum going. But their history is one of political overhauls and central bank blunders. They are known to mismanage economic growth, and to restrict foreign capital flows, as Brazil recently did (http://www.brazzilmag.com/content/view/11334/1/ - broken link). Their stock markets are known as trading markets, not investing markets. And their population is susceptible to yearning for a better life in the US and Europe.

When you break down these stock markets, you find a heavy concentration in commodity producers and, ahem, banks. There is little else - their healthcare and consumer staples apparently come from American multinationals like PepsiCo and Johnson & Johnson. I can't imagine much of the "rising middle class" interacting with CNOOC or Vale.

So what we have, as I see it, is a great story about the spread of consumerism. The great story does not really connect to the companies involved in the great stock market performance. Valuations have run away (up 72% ytd; are earnings up that much?). I don't see any seismic shift in the emerging markets' domestic demand for products, or in locals investing rather than saving. I see Americans pessimistic, and investing abroad without looking before they leap.

I see a bubble in emerging markets - can anyone talk me down? If you agree, when do you think the bubble will burst? What will be the pin that pricks it? What will be safe from it?
It really depends on what nation you're looking at.

China has a real estate bubble that makes the US sub-prime market look fantastic in comparison. That and the complete collapse of their export market has forced their central bank to cash in some of their enormous holdings and invest in real estate, infrastructure, and other things. What will prick it? Ongoing softness in the American market, the impending revolt of real estate investors to overinflation, etc. Their economy has risen by 7% this year, but that's almost completely spending on their part. Oh, and that still doesn't provide enough jobs for Chinese university graduates.

S Asia is probably in the best shape since Indonesia and India are investing in industry and intellectual capital, respectively, building a true.

Russia is in trouble since oil prices aren't really "rallying" and their economy is almost completely based off oil exports.

I dunno much about Brazil. All I know is they're gonna spend megabux on trying to secure Rio and make the city presentable for the 2016 Games. Good luck to that I say!
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Old 10-22-2009, 10:26 AM
 
278 posts, read 448,526 times
Reputation: 292
I suppose it's China and Brazil that are the "really big deal" economies this year. I see lipstick on a couple of pigs.

American has so many problems, but our problems don't begin to compare to the pollution, poverty, drugs, and corruption in the BRIC countries.

They're improving, but I don't see how their companies should command such a premium to America's. Especially the export-based companies that rely on America and Europe! Of course there are investable companies in emerging markets, but I have a feeling they will be "going on sale" at some point in the future.
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Old 10-23-2009, 12:36 AM
 
3,584 posts, read 4,829,893 times
Reputation: 5535
Quote:
Originally Posted by mtta View Post
I suppose it's China and Brazil that are the "really big deal" economies this year. I see lipstick on a couple of pigs.

American has so many problems, but our problems don't begin to compare to the pollution, poverty, drugs, and corruption in the BRIC countries.

They're improving, but I don't see how their companies should command such a premium to America's. Especially the export-based companies that rely on America and Europe! Of course there are investable companies in emerging markets, but I have a feeling they will be "going on sale" at some point in the future.
I have money invested in Brazil, India and China through closed-end funds and ETFs. I am not worried about bubbles in any of them, since the prices go UP and DOWN regularly with the jumping in-and-out of speculators and "hot tip" investors. For the long run, all three are good places to have money invested.

Every country has its issues with corruption, pollution and corporate governance, so I wouldn't make that a criteria for investing. If you think that the USA is clean and safe, consider the recent scandals, i.e., Bernie Madoff, Galleon Group, Enron, and the revolving door that links the U.S. Gov't and Goldman Sachs.

The BIC countries all have growing middle classes that will make their domestic demand grow relatively faster than their export demand, given the weakness in Europe and the US of A.
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Old 10-23-2009, 08:24 AM
 
22,769 posts, read 29,522,727 times
Reputation: 14703
Quote:
Originally Posted by mtta View Post
I see a bubble in emerging markets - can anyone talk me down?
No, I can't talk you out of that.

This thread reminds me of an article I read this morning.

Dollar hegemony for another century – Telegraph Blogs
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Old 10-23-2009, 12:06 PM
 
278 posts, read 448,526 times
Reputation: 292
Great article. There is someone in the media willing to "stick [their] neck out". I agree that everyone conveniently forgets that Asia stands to fare much worse with the coming demographic shifts. And that other nations have control over the US dollar; it will only lose status if they let it, and their export economies thrive with a strong dollar.

Elsewhere, it seems like every expert now recommends increasing EM exposure. When they all agree, doesn't that meant the end is near?

I'm thinking of the Chinese stock market as a kite. After the economy sent it flying high, the string was clipped, and it detached from the real economy. It may go still higher, but eventually a bad wind will blow and it will hit the ground.

For example, take the many EM commodity producers, and compare their stock price increase to the underlying commodity. Like PBR. There should not be such a huge difference.

I'm not as pessimistic about the Chinese people or the real economy in China. It's just that their stock market is powered by our money. We're keen on chasing trends. I'm not sure about China, but I sure know us.
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Old 10-24-2009, 09:49 PM
 
Location: Las Vegas, NV
111 posts, read 280,240 times
Reputation: 84
Quote:
Originally Posted by eskercurve View Post
... Their [China's] economy has risen by 7% this year, but that's almost completely spending on their part.
I don't mean to detract from your points; it is closer to 9%.

China's growth quickens but policy stays on hold - Yahoo! News (http://news.yahoo.com/s/nm/20091022/bs_nm/us_china_economy - broken link)
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