Posts Tagged Emerging Market Investing

It is fascinating to observe more and more people from the United States begin to engage “Emerging Markets” and “Frontier Markets” . I am not refering only to buying shares in major corporations, but engaging property markets and people. It is as if the citizens of the United States are getting passports and going all over the world looking for opportunity and learning. Many of our people are even diversifying their residency, rolling up their shirt sleeves and diving into other countries. As they say, it is better late than never. It can be scary. It´s a big world out there and each culture plays by their own set of rules. But the Americans are quick learners and adaptable and it is a good thing because times are changing. Everybody has to look forward because there is no where to go back to. This is especially true for investors. The irony is that getting familiar with emerging markets, their leading companies and currencies is the safer posture. It is the only way to truly diversify, and access markets where there is capital appreciation while hedging against inflation. Like leaving the trenches to gain ground in a dangerous investment environment, one either moves forward or cuts and runs back in order to be shot by his own team. Investors…it is time to get educated, take responsibility to understand your investment decisions, control your own accounts and move forward into emerging markets because there is nothing to fear but fear itself.

Note:
The term emerging markets is used to describe a nation’s social or business activity in the process of rapid growth and industrialization. Currently, there are approximately 28 emerging markets in the world, with the economies of India and China considered to be by far the two largest. According to The Economist many people find the term dated, but a new term has yet to gain much traction.

The FTSE Group distinguishes between Advanced and Secondary Emerging Markets on the basis of their national income and the development of their market infrastructure. The Advanced Emerging Markets are classified as such because they are Upper Middle Income GNI countries with advanced market infrastructures or High Income GNI countries with lesser developed market infrastructures.

The Advanced Emerging Markets are: Brazil, Hungary, Mexico, Poland, South Africa, Taiwan.

The Secondary Emerging Markets are some Upper Middle, Lower Middle and Low Income GNI countries with reasonable market infrastructures and significant size and some Upper Middle Income GNI countries with lesser developed market infrastructures.

The Secondary Emerging Markets are: Argentina, Chile, China, Colombia, Czech Republic, Egypt, India, Indonesia, Malaysia, Morocco, Pakistan, Peru, Philippines, Russia, Thailand, Turkey.

The term “frontier markets” was coined by IFC’s Farida Khambata in 1992. It is commonly used to describe a subset of emerging markets (EMs). Frontier markets (FMs) are investable but have lower market capitalization and liquidity than the more developed emerging markets. The frontier equity markets are typically pursued by investors seeking high, long term returns and low correlations with other markets. The implication of a country being labeled as frontier is that, over time, the market will become more liquid and exhibit similar risk and return characteristics as the larger, more liquid developed emerging markets.

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A point that Mark Mobius made in the interview in the previous post was that in a diversified portfolio the risk in Emerging Markets isn´t really greater than Developed Markets. This comment is radical and the financial community as a whole doesn´t sense that yet because their boots are literally not in Sao Paulo, Shangai, Beijing and Mumbai. They are still in New York or London or trading in a suburban Houston office. I had a rich conversation yesterday in Buenos Aires with a professional money manager who invests Argentine money in the United States stock market. As an investor he was more comfortable with the liquidity of stocks in the NYSE or NASDAQ. We discussed how closely the financial community watches the US markets and that the local financial journalism seems often on the heartbeat of the Dow. But as we talked about growth over the long run we came to an agreement that there will be more returns in emerging markets over the decades to come and that the world financial culture will tilt further East and South.  This is a realization that our United States investors are slowly beginning to understand; but old habits die hard. Take a look at the article below and think about where is the future? Where will companies be expanding, finding new and undiscovered consumer markets for their products and services? Where is the momentum?  When I graduated from college in 1993 my first job was with a growing commercial bank with big ambitions  (Now JP Chase Morgan).  The management training programs were hiring!  New York and the bank blossomed for the next 15 years.  It is almost 2010 now.   Where is growth in the next 15 years and beyond?  My common sense says in the emerging markets and even frontier markets.  Think about it.

http://www.nytimes.com/2009/08/11/business/economy/11expats.html?em

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