BRIC

08/21/2012

Investing in High-Tech in Russia, Part II: Challenges and Opportunities

In Part I of this article, I dealt with misconceptions about Russian high tech and Russian markets in general. I now explore investment opportunities outside of the familiar defense, oil, gas, and commodities sectors. I also examine financial and cultural barriers to investing, and macroeconomic considerations.

NONDEFENSE HIGH-TECH SECTORS

Continue reading "Investing in High-Tech in Russia, Part II: Challenges and Opportunities " »

07/31/2012

Investing in High-Tech in Russia, Part I: From Italy with Love...for Russia

In June 2011, I attended the 18th annual conference of the Multinational Finance Society. My hotel, located in a prosperous section of Rome, did not have hot water running, and the air conditioning didn’t work—conditions that seemed incongruous with the surroundings. But I was pleased to discover that the TV had 20 international channels, including five Russian ones, two Chinese, and several Arabic. I found the most interesting channel to be Bloomberg Europe, where I caught a conversation about investment in Russia.

Discussions about investment in Russia usually center on oil and gas, but the leader of the Bloomberg panel shifted the subject to high tech. While “Russian high tech” seems like an oxymoron thanks to our mainstream media, the perceptions of Russian high tech, and of Russian markets in general, are very different from reality.

Continue reading "Investing in High-Tech in Russia, Part I: From Italy with Love...for Russia" »

06/11/2012

Worldview Podcast: Not Just BRICs and Mortar

Worlview Podcast

In recent years, Brazil has been touted as one of the most promising and fastest growing emerging markets for investors. Although growth has recently slowed down, events such as the 2014 World Cup and 2016 Olympics still on the horizon may recharge the market. Geoffrey Pazzanese, Vice President of Federated Global Investment Management, gives an overview of Brazil's current and potential investment opportunities.

Notable facts about Brazil:

  • With the upcoming 2014 World Cup, Brazil will increase its investment in civil infrastructure, transportation, and stadiums.
  • Public housing is one of Brazil's largest investments at R$ 1 trillion (BRL).
  • The poverty level is at 26%, in line with India and higher than Mexico.
  • By 2014, the poverty rate as a percentage of the share of population is expected to be below 10%. (In 2003, it was 30%).
  • The recent rise in the middle class has increased consumer spending on items like white goods, cars, clothes, and homes.
  • Ease of doing business in Brazil is relatively poor because of heavy bureaucracy and a shortage of lawyers to help cut through the red tape. This is a major hindrance of growth.

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05/30/2012

Book Review: Breakout Nations

Breakout-NationsInvestors have been drawn to the rapid growth and what some see as "economic miracles" among countries described as the emerging markets. A potentially profitable strategy is to spot the next country growth stock in advance, and to cash out of those countries before their growth peaks. As head of Emerging Market Equities at Morgan Stanley, author Ruchir Sharma is well-qualified to help investors in this process.

What makes Breakout Nations: In Pursuit of the Next Economic Miracles so fascinating is the author's experiences visiting and investing in so many of the emerging markets. He is well-versed in all the relevant economic statistics and financial trends. In addition, he is a writer who knows how to grab the reader's attention and keep the reader engrossed. Most importantly, Sharma challenges the popular consensus on many countries, and presents many observations and conclusions that emerging market investors must consider.

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02/01/2012

How and Where Should You Invest in Emerging Markets?

As the new year failed to ring in a solution to the debt crisis that has transfixed the eurozone, investors are left wondering whether now is the time to place their bets on potentially risky growth opportunities or to keep their assets in safe havens. Beyond Europe’s sovereign credit issues, other factors such as massive debt overhang, the threat of double-dip recessions, and ongoing money printing by central banks in the developed world call into question the traditional definition of “safe.” In this environment, some money managers are asking whether investing in emerging economies may, in fact, be safer than committing assets to developed markets.

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01/23/2012

Book Review: The Growth Map

The-Growth-Map

Ten years ago Jim O'Neill, chairman of Goldman Sachs Asset Management, changed the field of global investing by coining the now iconic phrase, “BRIC”—abbreviated for the four countries that he and his team predicted as the main emerging economies. Brazil, Russia, India, and China—countries that he said would eventually surpass the six largest Western economies, and changed the scope of emerging markets. In his new book, The Growth Map: Economic Opportunity in the BRICs and Beyond, O’Neill provides a firsthand account of the evolution of “BRIC,” and where these countries currently stand. He also introduces a new prediction: the "Next Eleven" countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam. These countries, according to O’Neill’s prediction, will offer great opportunities for investors over the next decade, similar to the BRICs.

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12/06/2011

The State of China’s Economy and US-Listed Chinese Companies

Ten years ago, when you read The Wall Street Journal, you barely noticed articles about Chinese public companies. Today, when you click your iPad app, WSJ.Com, China-related news generates daily headlines. On Oct 24 2011, the New York Society of Security Analysts (NYSSA) joined with China Council for International Investment Promotion (CCIIP) to host “2011 Chinese Companies Listed on US Market Development Forum”, which provided an opportunity for US investors to have an open dialogue with several Chinese companies. Not surprisingly, this forum drew a lot of attention from an audience that including both private and institutional investors. When analyzing the complex interdependent relationship between the fast-growing Chinese economy and the globally dominant US economy, one must understand three key points.

Continue reading "The State of China’s Economy and US-Listed Chinese Companies " »

11/02/2011

Russia: Some BRICs Are Different

Russia has always been different from the rest of the world. Even 20 years after the end of the Soviet Union and the Cold War, this author still finds it a little strange to find Russia grouped with other BRICs, or most emerging market countries. The others—China, India, and Brazil—all have very large portions of their populations struggling with poverty, and are characterized by historically limited, but now improving, access to technology. Not Russia.

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03/16/2011

BRICs versus CIVETS

The acronym BRIC—Brazil, Russia, India, and China—coined by the Goldman Sachs economist Jim O’Neill (2001) is now a widely accepted and understood term. The justification for such a grouping is clear, as the BRICs are comparable in terms of territory, population, GDP, stock markets, and sociopolitical factors (see Table 1). The acronym CIVETS—Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa—was conceived in 2009 by Robert Ward, director of global forecasting for the Economist Intelligence Unit (see Economist 2009), and popularized by Michael Geoghegan (2010), group chief executive of HSBC Holdings plc, shortly after. As the newer term makes its way into the investment lexicon, we need to ask whether these six countries merit such a grouping.

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03/09/2011

Investment Issues in Emerging Markets: A Review

CFA InstituteEmerging markets have generated considerable interest among investors and academics. Although their returns are increasingly converging to those of the developed world because of integration and liberalization, they still provide benefits to a global portfolio. This review reflects the latest practitioner and academic work on emerging market investing.

Read the full article for free at the CFA Institute site

03/08/2011

Book Review: Hedge Fund Alpha

Hedge fund alpha Generating and understanding performance are two distinct processes that often require different skill sets and are typically performed by different arms within a hedge fund organization. The former falls under the realm of the portfolio manager; the latter is often provided by the CFO, COO, or investor-relations functions at the hedge fund. Editor John Longo skillfully combines explanations of both processes in the Hedge Fund Alpha: A Framework for Generating and Understanding Investment Performance.  The essays in this book elucidate what the alpha-generation process is, as well as how the outcome of that process is assessed, evaluated, and monitored. While these are separate questions, there is a feedback mechanism between the two, which reinforces the importance of understanding both topics.

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01/24/2011

Book Review: Brazil on the Rise

Brazil on the RiseBrazil is a country that has become an industrial and agricultural superpower in the world market. However, it is a country still not well known to many and “hardly on the radar screen" to most Americans. Larry Rohter’s new book, Brazil on the Rise: The Story of a Country Transformed, is an excellent introduction to Brazil. He was in Rio de Janeiro for 14 years as a correspondent for Newsweek and the New York Times.

Continue reading "Book Review: Brazil on the Rise" »

01/04/2011

Returning as a Tiger: The Economic Reincarnation of India (Part II)

INDEX: INDIAN PUBLIC EQUITIES | VALUATIONS IN INDIA ARE REASONABLE | CURRENCY: SHOULD ONE BE A RUPEE GROUPIE? | CONCLUSION: PORTFOLIO DHARMA

The first part of this article discussed recent economic developments in India and the prospects for high growth rates over the long term. Part II covers the performance of the equity and currency sectors and offers compelling reasons to include India in either a global or EM (emerging-markets) portfolio.

India has been on investors’ radar screens since at least 2000, but it has rocketed to even greater prominence in the post-crisis recovery. Its major stock index, the Sensex 30, has grown more than 125% since its low in March 2009, outpacing the S&P 500 Index (up 82% since March 2009), China’s Shanghai Composite (up 65% since October 2008), and even the highly popular Brazilian Bovespa (up 115% since December 2008). India-related ETFs have proliferated, allowing easier access to Indian market returns. The emphasis on the centrality of China in the global economy can make it easy to miss the opportunities offered by China’s neighbor.

Continue reading "Returning as a Tiger: The Economic Reincarnation of India (Part II)" »

12/15/2010

Returning as a Tiger: The Economic Reincarnation of India

INDEX: INDIA IN COMPARATIVE PERSPECTIVE | GEOPOLITICAL, DOMESTIC, AND ENVIRONMENTAL RISKS | RECENT ECONOMIC PERFORMANCE

For those who grew up with images of India as a land of poverty, recent news would seem veritable proof of economic reincarnation. Indian poverty still exists, of course, and in a land of more than one billion people, a 25% poverty rate means that at least 250 million people—or more than three-quarters of the US population—still live in highly precarious conditions. It will be a long time before its poverty can be eradicated, but India can boast of many recent achievements, and there are good reasons to expect that the country will continue to grow and develop rapidly as it has over the last decade. Investors are naturally interested in how to participate in this story.

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11/23/2010

The Rise of the State—Past and Prologue

Rise of the State At a party during a trip to China in the 1930s Nikos Kazantzakis, one of the foremost writers and thinkers to emerge from Greece in the 20th century, became involved in a deep conversation with a mandarin. Kazantzakis noted that both the communists and the Japanese were advancing toward Beijing from different directions. Was the man scared? Kazantzakis asked. The mandarin, at one time China’s ambassador to France, smiled. “Communism is ephemeral, Japan is ephemeral, but China is eternal,” he said.

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10/06/2010

Update on Brazil: More Than a One-Note Samba, But Changing Key

INDEX: WEATHERING THE CRISIS | EMERGING RISKS IN BRAZIL | A CROWDED TRADE | CHANGING POLITICS | THE IRRESISTIBLE COOKIE JAR (PETROBRAS) | OVEROPTIMISM AND “BRASIL GRANDE” | SUMMARY

Worldview first covered Brazil in the Winter 2009 edition of The Investment Professional. At the time, when it was not entirely clear that the dramatic crash of late 2008 had fully run its course, this column argued that investors willing to invest or hold on to their Brazilian exposure would likely find their patience rewarded. There were several arguments in favor of Brazil:

  1. Extensive Brazilian experience in surviving and adapting to economic shocks.
  2. Large foreign reserves and manageable debt loads, shielding Brazil’s government from fiscal and political crisis.
  3. Highly professionalized fiscal and monetary authorities.
  4. A substantial domestic sector that could buffer reduced international demand.
  5. A more diversified export base than generally appreciated by most investors.
  6. (Exports diversified by both export destination and industry.)
  7. Foreign investors predisposed to run at the first sign of trouble in Brazil, providing an opportunity to enter at attractive valuations.
  8. Attractive correlation (i.e., diversification) features.

Continue reading "Update on Brazil: More Than a One-Note Samba, But Changing Key" »

09/07/2010

Free Lunch in Emerging Markets: Evidence from Latin America

What does a US investor stand to gain from international portfolio diversification? This analysis discovers that diversification benefits would have made it beneficial for an investor with any risk profile to include emerging Latin American market indexes in a US portfolio from 1992 to 2006, rather than investing solely in S&P.

Although several studies exist on the benefits of international diversification (e.g., Grubel 1968; Levy and Sarnat 1970; Lessard 1973; Odier and Solnik 1993; and Eun and Resnick 1994), the benefits to the foreign investor in emerging Latin American markets are still under-researched. In addition to the question of whether it’s worthwhile for US investors to include emerging Latin American market equities in their portfolios, there is also the issue of what the optimal portfolio mix for such investors would be.

Continue reading "Free Lunch in Emerging Markets: Evidence from Latin America" »

09/06/2010

One Big Happy Family: The Global Crisis Tests Postwar Alignments

Happyfamily

If the global institutions and alignments created after World War II were looking a bit long in the tooth at the dawn of the 21st century, the economic crisis has pushed them one step closer toward irrelevance, if not extinction. Up-and-coming powers like China and India, no longer content with a subsidiary role on the global stage, are clamoring for more power, and the financial crisis is giving them the opportunity to explode the political and economic status quo.

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09/02/2010

Mongolia: BRIC-ing Up is Hard to Do

INDEX: MONGOLIA IN COMPARATIVE CONTEXT | GEOGRAPHIC CONSTRAINTS AND ECONOMIC VULNERABILITIES | HISTORICAL BACKGROUND | ECONOMIC GROWTH AND STRUCTURE | ECONOMIC RISKS | SUMMARY

Mention Mongolia, and most people will conjure images of horse-mounted hordes rushing across the Asian steppes, building the largest land empire the world has ever seen. While Mongolians are understandably proud of their heritage, which has included ruling three present-day BRICs (China, India, Russia), much of the Middle East and parts of Eastern Europe, the Mongolia of today is a much smaller affair, consisting of just over three million people—approximately the population of Jamaica—scattered across an area roughly the size of Iran.

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06/30/2010

Turkey Navigates the Straits of a Crisis (Part II)

LYRICAL LIRAS | FIXED INCOME: CLOSER TO INVESTMENT GRADE | TURKISH EQUITIES: FAST-GROWING BUT VOLATILE

In an earlier article, we discussed the strength and attractiveness of the Turkish economy. In part II of Worldview: Turkey, we will look at the currency, fixed income, and equity markets. In brief, Turkey has many attractive emerging market characteristics, but its risk-adjusted performance as an equity investment, while positive, has not been as outstanding as its economic performance would suggest it could be.

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06/10/2010

Recent Research: Highlights from June 2010

"A Valuation Study of Stock Market Seasonality and the Size Effect." The Journal of Portfolio Management, Spring 2010. Zhiwu Chen and Jan Jindra.

Existing studies on market seasonality and the size effect are largely based on realized returns. In this article, Chen and Jindra investigate seasonal variations and size-related differences in a cross-stock valuation distribution. They use three stock valuation measures, two derived from structural models and one from the book-to-market ratio. The authors find that the average valuation level is highest in mid-summer and lowest in mid-December. Furthermore, the valuation dispersion (kurtosis) across stocks increases toward year-end and reverses direction after the turn of the year, suggesting increased movements in both the underand overvaluation directions. Among size groups, small-cap stocks exhibit the sharpest decline in valuation from June to December and the highest rise from December to January. For most months, small-cap stocks have the lowest valuation among all size groups and show the widest cross-stock valuation dispersion, meaning that they are also the hardest to value. Overall, large-cap stocks enjoy the highest valuation uniformity and are the least subject to valuation seasonality. 

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05/06/2010

The Philippines is Buffeted by Stormy Politics and Natural Disasters

THE PHILIPPINES IN COMPARATIVE PERSPECTIVE | ECONOMIC HISTORY | ECONOMIC GROWTH AND DEVELOPMENT | EQUITIES: LESS VOLATILE, BUT MEANDERING | CONCLUDING THOUGHTS ON RISK AND RETURN

The Philippines is a key participant in Asia’s growth story: one of the few countries that can be described as a former US colony, it has many characteristics that should make investors at least pause to investigate. The US colonial heritage, for one, has left in place an economic culture favoring markets and capitalism. Low-cost, relatively educated, English-speaking labor has meant that Philippine call centers and other business-service providers can compete with India for business from firms that are offshoring their business processes. Extensive mineral deposits can also feed China’s voracious commodity appetite. Nonetheless, political and geographic factors create risks that have handicapped economic performance to below what traditional economic indicators would suggest is possible.

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04/14/2010

The G-20 Agenda for Regulatory Reform

Meeting behind impressive security barricades in a revitalized Pittsburgh, Pennsylvania, representatives of the G-20 (Group of 20) nations announced agreements in principal on a number of fronts, including financial services regulation, stimulus efforts, global trade, reallocation of IMF (International Monetary Fund) shares, and rebalancing national economies. The group affirmed its new standing as the global economic forum of record, formally eclipsing the G-7 (Group of 7) and the G-8 (Group of 8).

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03/22/2010

Investment Opportunities for a Low Carbon World

FTSEAs markets globally struggle with recession, a core part of the message from many political leaders to their citizens is that economic growth can be stimulated in part by investment in the technologies, infrastructure and services that will enable the transition to a low carbon economy.

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03/19/2010

Mending the Seams: International Regulatory Reform

Illustration by Mark AndresenAs the global economy begins to find its way back from the brink following the financial crisis, the impetus is shifting from the day-to-day efforts to keep the system afloat to the long-term fixes that are needed to maintain and increase its stability and flexibility. All eyes are on the national governments and regulators who continue to shape a structure that either will be up to the task of managing an increasingly globalized economy or will fall short of the mark, resulting in the lack of a sustainable recovery, further crises, or both.

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12/01/2009

Surfing the Tsunami: Brazilian Markets and the Global Crisis

INDEX: EQUITY AND CURRENCY | STRENGTH IN DIVERSIFICATION | IN SUMMARY: STRONG BUT NOT IMMUNE

Brazilians often point out proudly how blessed their land is. “Brazil has no natural disasters: no earthquakes, no tornadoes, no volcanoes, no hurricanes,” they say. Some add, chuckling lightly, “Our disasters are all man-made!”

The financial crisis engulfing the globe has arrived recently on Brazil’s shores. Brazil is no stranger to financial and political stress; indeed, over the last thirty years, the country has endured debt crises, extended hyperinflation, currency crashes, seven currency changes, economic recession, unemployment, the transition from military to civilian government, presidential resignation to avoid impeachment, banking failures, and, more recently, a period of rapid domestic and export growth that breaks with traditional experience. The consistent theme throughout these challenging years has been Brazil’s resilience: both economic and social.

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10/01/2009

Egypt Delivers Impressive Results, But with Risks

FROM SOCIALIST TO QUASI-LIBERAL ECONOMICS | ECONOMIC STRUCTURE | EQUITY MARKETS | HIDDEN RISKS BENEATH THE SAND

Egypt—land of pyramids, sphinxes, and pharaohs—is changing with the times. Political and economic liberalization in the 1990s and 2000s has made Egypt an exceptional frontier market that is still worth investigating as part of an asset allocation. Although equity performance has been extraordinary and the chronic currency devaluations of earlier years have largely passed, investors should be aware of the political risks stemming from Egypt’s authoritarian political structure, aging president, highly unequal wealth distribution, and fundamentalist social movements.

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08/03/2009

South Africa May Join the Vanguard of Developing Markets

A COMPARATIVE PERSPECTIVE | ECONOMIC STRUCTURE | CURRENCY | EQUITY | IN SUMMARY

The uniting of Brazil, Russia, India, and China under the acronym BRIC constitutes an acknowledgment of the significant role that developing economies are likely to play in future global growth and investment opportunities. BRIC encapsulates the importance of the three largest developing countries (Brazil, India, China) and stresses the notability of economic transitions in formerly socialist countries such as Russia. But as interest in BRIC has heated up, Africa—traditionally a central topic in economic development work—has been conspicuous by its absence. In many ways, however, the nation of South Africa can be thought of as the African BRIC: all in all, it’s just another BRIC in the emerging market wall.

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