Worldview

08/03/2011

Peru (Part II): Currency and Equities

CURRENCY: SHEDDING LIGHT ON THE NUEVO SOL | ACCESSING PERU'S EQUITIES | PERUVIAN EQUITY PERFORMANCE | EQUITIES, LOOKING FORWARD

Part I of Worldview’s Peru coverage discussed Peru’s recent macroeconomic history and political economy, noting that Peru has been an impressive economic story that has stayed largely under the media radar. The recent election of Ollanta Humala, a candidate with a history on the far left of the political spectrum has cast the future performance of the economy into question, even if—as part of his runoff campaign—he has promised to govern the country from center-left policies rather than the far-left of Peru’s political spectrum and his base coalition. This piece examines the performance of Peru’s currency and equity markets and considers the attractiveness of the asset markets going forward.

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07/26/2011

Understanding China’s Economic Indicators

Understanding-Chinas-Economic-IndicatorsChina moves the markets. The world’s second largest economy, biggest source of growth, and most important consumer of commodities is an increasing focus of attention for investors.

But answering even simple questions about the size and growth of the Chinese economy is not straightforward. The official data is haunted by controversy, with widespread doubts about its accuracy.

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07/20/2011

Peru: Inca Gold Still Powers a People

PERU IN COMPARATIVE PERSPECTIVE | ECONOMIC GROWTH PATTERNS IN PERU | THE PERUVIAN POLITICAL-ECONOMIC SITUATION | 2011 ELECTIONS CONCERNS | PERU’S MACRO SUMMARY

While its neighbors Brazil and Chile capture much of the world’s attention, Peru has quietly grown into a star performer among emerging markets. Whether this continues as its newly elected leftist president Ollanta Humala takes the helm remains to be seen, but preliminary signs are hopeful, even if growth becomes more muted than in the recent past.

Peru has been known as a commodity exporter for much of its history, and this has been both a blessing and a curse. Properly managed, Peru’s resource wealth presents great opportunities, but countries whose economies are based on extractive industries tend to be wealth concentrators. The profits from concentrating industries are not always reinvested optimally and can become the enabler of corruption networks. Peru has struggled with this dynamic through much of the last century and even before, at times rising above it, and at other times becoming overwhelmed. Its most recent track record has been positive, however, and there are reasons to hope that it will continue.

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07/06/2011

Worldview: Summer Perspectives on the Arab Spring

It’s been scarcely six months since the start of what is now being called the “Arab Spring” : a series of revolts and, in some cases, the overthrow of authoritarian regimes in the Middle East. The conclusion of these events is yet uncertain even where revolts have thus far seemed “successful.” In this Wordlview special report, we offer some perspective on these events and suggestions on how to think about them as they evolve.

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06/30/2011

Worldview Podcast: What is Globalization?—A Primer

Worldview PodcastThe term “globalization” is thrown around a lot. While it sounds good as a buzzword, understanding what it actually means is critical. NYSSA held a career chat to discuss this very issue, featuring speakers from all over the world, representing a number of career fields. The panel kicked off with a brief explanation, presented here in an excerpt as a helpful introduction to globalization.

If you want to watch the webcast of this entire event or any other NYSSA program, visit NYSSA's On-Demand website.

06/15/2011

Worldview Podcast: Singapore, Globalization, and You

Worldview PodcastBlake Zhang had nearly a decade of experience working in Singapore before becoming a vice president at Daiwa Capital Markets America. Zhang provides valuable insight not only into Singapore's place in our quickly globalizing world, but also which economic and hiring strategies in use in Singapore truly exemplify that often hazy term.

If you want to watch the webcast of this entire event or any other NYSSA program, visit NYSSA's On-Demand website.

06/10/2011

Book Review: Managing the China Challenge

Managing the China ChallengeManaging the China Challenge: How to Achieve Corporate Success in the People's Republic is an authoritative guide to China’s intricate political and business structure. Author Kenneth G. Lieberthal is the director of the John L. Thornton China Center at the Brookings Institution and was senior director for Asia on the National Security Council from 1998 to 2000. His new book is essential reading for anyone investing or doing business in China, where “the state is always your partner.”

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05/24/2011

Investment Issues in Emerging Markets: A Review

CFA InstituteBecause of their higher economic growth and potentially higher returns, emerging markets have received increasing attention from investors in the developed world. They are also said to provide diversification benefits for U.S. investors because of their low correlations with U.S. assets.

It is well documented that the benefits of international diversification within developed markets have declined over time because of increasing correlations. Emerging markets, however, offer both lower correlations and an expanded number of markets to invest in, as demonstrated in Goetzmann, Li, and Rouwenhorst (2005). More recently, Eun and Lee (2010) have confirmed that, although their performance is converging to that of developed markets, emerging markets are still more distinct from one another than developed markets are and still provide diversification benefits to the global investor.

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05/17/2011

Book Review: When China Rules the World

When China Rules the WorldThe rise of China and the potential economic and political decline of the United States is a concern for many Americans. In When China Rules the World: The End of the Western World and the Birth of a New Global Order, Martin Jacques depicts a world in which Chinese influence is paramount. He challenges the assumption that China will adopt Western values. Chinese modernity, he argues, would be very different from Western modernity, and China would transform the world far more fundamentally than any other global power has done in the last two centuries.

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05/04/2011

Future of Microcap Rally Uncertain in 2011

As is traditional when an economy begins to recover, microcap and smallcap stocks have ruled during the past several years. From the spring of 2008 until this spring, the Russell 2000 Index of smallcap companies has outperformed the S&P 500 by a staggering margin. While the S&P 500 has returned just 2 percent on an average annual basis during that time, smallcaps have returned 9 percent.

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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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03/15/2011

Investing in Indonesia (Part II)

INDONESIAN EQUITIES IMPRESS | RUMINATIONS ON THE RUPIAH | CONCLUSION

Worldview’s last piece on Indonesia highlighted the historical development of Indonesia’s economy and the success of its export-led growth model in spite of high corruption levels, legacy state-controlled enterprises, and political uncertainty in the aftermath of the Asian currency crisis and subsequent rise of Indonesian democracy. This follow-up article covers the recent performance of Indonesia’s equity and currency markets, putting Indonesia’s phenomenal gains in greater context.

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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

02/16/2011

Investing in Indonesia: The Tune of the Gamelan

INDONESIA IN CONTEXT | ECONOMIC AND POLITICAL HISTORY | ECONOMIC STRUCTURE AND RECENT PERFORMANCE | ECONOMIC, POLITICAL, AND NATURAL RISKS

The post-crisis performance of Indonesia has been phenomenal. With its overall economy virtually untouched by the financial crisis and its equity markets rapidly rebounding, Indonesia has outperformed virtually all major emerging-market competition, including Brazil. What characteristics have brought about this growth and expansion, and to what extent are these trends likely to continue?

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Commentary: As Goes Egypt . . .

I am no Middle East expert, and clearly there are a multitude of factors beyond a humiliated fruit cart vendor in Tunisia that have triggered the revolutions playing out on our nightly news. Certainly decades of repression and unfathomable corruption (Mubarak is thought to have in excess of $40 billion invested securely outside Egypt) are the primary drivers. But I would like to focus on food and energy. A consensus is emerging that dramatic increases in food prices are also a root cause of the revolutions in Tunisia and Egypt, as reflected by an article in Scientific American titled: “Are high food prices fueling revolution in Egypt?

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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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05/01/2009

On the Shores of the Black Sea: Will Romania's Economy Sink or Swim?

HISTORICAL AND REGIONAL CONTEXT | ECONOMIC STRUCTURE | EQUITY PERFORMANCE | IN SUMMARY

Romania, a country famed for its Olympic gymnasts, has often required its citizens, investors, and business community to perform some economic gymnastics of their own. After the hyperinflation crises that accompanied the transition to capitalism in the 1990s, Romanian equities vaulted upward between 2003 and 2007. However, those jumping into Romania’s stock market after mid-2007 may have felt as though they have had their own personal encounter with Vlad the Impaler, another famous Romanian.

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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" »

09/15/2010

Mongolia, Part II: Should One Tempt the Wrath of Khan?

INDEX: MONGOLIAN EQUITIES | CURRENCY: THE TÖGRÖG (TUGRIK) | INTEREST RATES | SUMMARY

Ulan Bator This article follows Worldview’s earlier report on Mongolia and presents the recent performance of Mongolian equities, currency, and interest rates. One of the challenges of investing in Mongolia is that data is harder to come by than for many other emerging markets, and so this presentation will not be able to perform the full sets of analysis that have traditionally been a part of Worldview articles. For example, MSCI does not keep an index, total return or otherwise, on the Mongolian market. We do, however, take what data is available use it in the most meaningful ways available.

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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.

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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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06/16/2010

Turkey Navigates the Straits of a Crisis (Part I)

HISTORY AND COMPARATIVE CONTEXT | ECONOMIC STRUCTURE

It is almost cliché to call Turkey a bridge between worlds, but on closer inspection, the country is difficult to describe as anything else. With a foot in Europe and a foot in Asia, Turkey truly is a crossroads between the East, West, and Middle East, a role shaped by its location and cultural geography, as well as its history.

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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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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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10/01/2008

Is Vietnam Another China?

THE GIANT NEXT DOOR: COMPARING VIETNAM AND CHINA | RECENT INDEX PERFORMANCE IN VIETNAM | SOME QUANTITATIVE FEATURES OF VIETNAM’S EQUITY INDEX | VIETNAMESE PERFORMANCE: SHORT-TERM ISSUES | IN SUMMARY

Interest in Vietnam exploded in 2006 when the Ho Chi Minh stock index (Bloomberg: VNINDEX:IND) grew 144% in one year, forcing global and emerging-market investors to sit up and take notice. Those fortunate enough to catch the “sweet spot” of that growth—from January 31, 2006, to February 28, 2007—saw a 264% capital gain in just 13 months. Vietnam realized the highest gains of any emerging market in a year when emerging markets were one of the strongest asset classes around, prompting investors and emerging-markets strategists to wonder if Vietnam might be “the next China.”

Vietnam exhibits many characteristics of a new “Asian Tiger.” However, a comparison with China, a look at Vietnam’s evolving equity market, and contextualization of Vietnam’s near-term economic issues all point to a key constraint: Vietnam lacks China’s scale. Its capacity to absorb large-scale investments is very small in comparison to China’s, and its liquidity risk is greater. But for smaller investors, Vietnam offers diversification benefits that could balance out some of the political risk of Chinese investments.

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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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