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Readers Questions Answered Part VIII
Its been a while since I answered some readers questions. Thank you, readers, for all your responses to the blogthey have been highly encouraging. 1. Do you think there will be a recession globally or in emerging markets from a mid- to
long-term perspective? 2. What is the impact if one or more countries withdrew from the euro? 3.What is your view on Ukraine? Ukraine is one of the more interesting markets since it has a number of viable industries with growth potential.
Readers Questions Answered Part VIII
Its been a while since I answered some readers questions. Thank you, readers, for all your responses to the blogthey have been highly encouraging. 1. Do you think there will be a recession globally or in emerging markets from a mid- to
long-term perspective? 2. What is the impact if one or more countries withdrew from the euro? 3.What is your view on Ukraine? Ukraine is one of the more interesting markets since it has a number of viable industries with growth potential.
Flooding in Thailand
While the consequences of the flood damage will negatively impact Thai corporate earnings, we believe the long term outlook for Thailand remains strong. In addition to the corporate tax cuts and various stimulus packages that have already been announced, the Thai government plans to spend US$13 billion on investments in dams, irrigation and water management to restore the country. We believe Thailand should also remain an attractive place for foreign direct investment due to location advantages, a supportive business environment and highly competitive workforce.
Addressing Market Volatility
With ongoing global uncertainty, I believe there are still a lot of questions surrounding the impact of market volatility in both developed and emerging markets. I recently recorded an interview discussing my views on some of these questions and want to share it with you through a video blog. I hope you like it.
Commodities and Conservation in the Caspian
What country is the worlds largest producer of petroleum? No, its not Saudi Arabia but Russia. Oil and gas are important to Russias economy, as are a whole host of natural resources such as nickel, palladium, diamonds, etc. Because of what have been higher commodity prices, Russias economy is growing at a fast pace, projected by IMF to grow 4.3% this year, interest rates have come down from their peak in 2008, unemployment is lower, foreign reserves have risen to over US$500 billion as at July 2011, and Russian equity markets have generally done well since 2008, even considering declines.
More Readers Questions Answered
We have begun to see signs that the overheated Chinese economy may moderate in the not-too-distant future. We believe that inflation in China could reach a peak in the near future as a result of the Chinese governments decision in July to increase pork supply by releasing a portion of their strategic pork reserves. By releasing more pork supply into the market, the government hopes to combat rising pork prices. That move, combined with an easing growth rate, could subsequently lead to the end of the central banks current tightening monetary policy cycle in the near term.
Readers Questions Answered Part VII
Many of you may be particularly concerned about the developments related to debt in the eurozone and theU.S.over the last few weeks. Id like to take this opportunity to share my thoughts on these events and respond to a couple of reader questions. To me, the European debt situation does not seem as serious as the U.S. debt crisis, both in terms of scale and the possible impact on the global economy. As such, I believe the worlds focus should really be on the U.S. debt crisis. We also have to remember that the tolerance for debt is generally affected by investor confidence levels.
The U.S. Debt and Emerging Market Opportunities
The initial market reaction will likely be a high degree of uncertainty and volatility, since investors will likely not know where to turn for assets with lower short-term volatility. During the subprime crisis, investors largely sought such assets in U.S. Dollars and Treasuries. While during the subprime crisis the USD index was high, now it is low reflecting a changed perception of markets that may be considered less volatile in the short-term. In particular, we believe currencies and stocks of emerging countries may look relatively attractive.
Urbanization: Driving Commodity Demand
Increasing economic activity in emerging markets has continued to push up the demand and prices for key resources such as metals and oil. Infrastructure spending is a key factor driving this rising demand, as more of the working population in emerging markets move from rural areas to the cities, increasing consumption and putting upward pressure on both hard and soft commodities. Long-term commodity prices are likely to be driven by rising global demand as well as increasing costs to obtain these commodities.
Urbanization: Building a New World
Over the next few decades, I believe we are likely to see an increase in several types of infrastructure investments due to rapid urbanization, which drives the increasing global demand for resources, mainly from emerging markets. Rapid urbanization in emerging markets, driven by rural populations migrating to cities in search of work and better opportunities, has put pressure on resources and prompted governments to pump money into a range of urban infrastructure-related sectors such as housing, transportation, sanitation, water, electricity and telecommunications.
Argentina
Argentina has been experiencing steady growth throughout the years despite the country?s economic problems, from double-digit inflation to a shrinking trade surplus. We saw one good example of the improvements in the country when we arrived at the Ministro Pistarini International Airport, which is in much better shape than it was in the past. Besides the bright and airy new wing, the customs and immigration process was quick and efficient. We then checked into a modern hotel in the Puerto Madero area in Buenos Aires, which is another good example of Argentina?s transformation.
Turkey: A Rising Power Bridging Europe and Asia
Turkey is the land where the European and Asian continents meet. I asked Carlos von Hardenberg, who is based in Istanbul and oversees our frontier market strategies, to share his views from the center of Eurasia: Since the implementation of the customs union agreement with the European Union (EU) in 1996, Turkey?s trade with EU countries has grown substantially in certain areas. In particular, the Turkish automobile sector has been growing at a fast pace and has become highly competitive. Between 1999 and 2008, auto production in Turkey grew by 285% to 1.15 million vehicles per year.
The Problem with the Misuse of Derivatives
Market volatility is a reality of today and goes in two directions, up and down. One of the reasons we have (and are likely to continue to see) this level of volatility is because of the occasional misuse of derivatives. Of course, not all derivatives are bad. If understood and used appropriately they can be used by funds as tools to hedge or mitigate risk. For example, currency forwards or interest rate swaps are typically used to hedge out a fund?s risk related to a specific currency or interest rate exposure.
Abu Dhabi
Abu Dhabi is the capital of the United Arab Emirates (UAE), the federation of seven emirates including Dubai. The UAE?s combined economy is large compared to its relatively small size?it has a population of around five million, of which 1.6 million live in Abu Dhabi. Per capita GDP in the UAE is more than US$40,000, and that number is significantly higher for Abu Dhabi, mostly because of the incredible earnings from oil and gas. Each day, Abu Dhabi produces more than 2 million barrels of oil, and its oil reserves are now estimated at nearly 98 billion barrels, the sixth largest in the world.
Oman
I recently visited Muscat, the capital of Oman. Oman has a very strategic position in the Middle East, controlling the tip of the Musandam peninsula even though the peninsula is separated from the rest of Omanby land belonging to the United Arab Emirates (UAE). That tip points right into the Straits of Hormuz, which is the choke point for oil leaving Saudi Arabia, Qatar, Iran, Kuwait, Iraq and the UAE from the Persian Gulf to the Arabian Sea, leading to the Indian Ocean. On a clear day, you can see Iran from the tip of the peninsula. Oman?s military, therefore, has to protect that waterway.
Opportunities in Southeast Asia (video)
Asia presents a wealth of investment opportunities. Economic giants like China and India, with their increasing demand for commodities and natural resources, play a pivotal role for growth in the region, including emerging markets in Southeast Asia. I think the outlook for Southeast Asia remains very positive. Countries like Thailand and Indonesia have seen very rapid growth in the last decade, and frontier markets like Vietnam and Laos, with their strong growth potential, are also very interesting to us.
Africa: Challenges and Outlook
In this post, I will discuss what I think are Africa?s key challenges. Corruption is a major problem in Africa. However, accusations of corruption against African governments could also be lodged against entities in the developed world that seek to buy the influence of these governments. One important development has been the Cardin-Lugar amendment to the Dodd-Frank finance reform bill in the U.S., requiring that oil, natural gas and mining companies registered on the New York Stock Exchange disclose any payment made to a foreign government for the purpose of the commercial development.
Africa: Opportunities in Nigeria, Ghana and Kenya
Those who are optimistic about Africa say that after many years of colonialism, it is beginning to demonstrate its potential. The continent does have its detractors, who say that while it may have been free of colonial rule for 60 years, the continent continues to battle poverty, corruption, AIDS and armed conflict. However, while Africa does have challenges, I am encouraged by another side of Africa that is gradually emerging with the development of capital markets, consumerism and technology.
Mexico: Conquering its Challenges
Mexico has a wonderful combination of a dynamic economy with an active cultural scene. Just like other markets, Mexico?s stock market suffered a crash at the end of 2008 and the beginning of 2009, moving from the 2007 high of almost 32,473 points to an October 2008 low of 16,979 points, a huge decline. Since then it has climbed steadily, more than doubling to reach 38,600 points at the beginning of this year. The Mexican economy has mirrored the stock market. After a disastrous 6% contraction of the economy in 2009, Mexico grew by more than 5% last year and is expected to grow by 4% in 2011.
China Part II ? Looking Beyond Its Shores
China?s latest 5 Year Plan is focusing on growing the domestic economy with a focus on harmony. A lot of the foreign investments and the large capital inflows into the Chinese market have all been focused on tapping into one of the world?s largest consumer markets. However, what many are missing is that China is the world?s fifth largest investor in terms of outbound direct investment at about US$56.5 billion in 2009. Last December, China announced US$16 billion in deals in India and this year, Chinese officials pledged to purchase as much as 6 billion Euro worth of Spanish gov bonds.
China Part I ? Planning for its Future
As a result of some labor shortages and rising wages in the low-end labor intensive manufacturing sector, some managers are moving parts of their production out of China to lower-cost countries such as Vietnam. This raises the question of unemployment in the export-oriented area which, combined with inflation, could result in social turmoil and labor unrest, if it?s not well-managed. One positive aspect is that the Chinese government recognizes the issues and addresses many of them in their new Five-Year Plan.
The Middle East: A Youthful Reawakening
The upheavals in the Middle East and N.Africa can be attributed to rising food prices, unemployment, corruption and political stagnation. Unemployment has stayed high and waves of new young job seekers entering the labor market have not been absorbed. As in many emerging markets, the populations in MENA countries are young. Most politically explosive is that an increasing number of the unemployed are high school and university graduates. It is important to note that the recent protests have come not from the lowest income levels but from middle-class and educated Arabs seeking fair treatment.
Readers? Questions Answered Part VI
It?s been a while since I answered some readers? questions. Questions addressed: What are your main criteria when picking a sector and the company in a particular sector? Most of the small companies in India are family-owned. Does this create a problem? What are your thoughts on Africa? What is your view on the Baltic States? Which sectors do you think are the most interesting? What is your view on the Brazilian and the Mexican equity markets for 2011?
Emerging Markets Vision 2020
There will always be unforeseen factors and circumstances that might become catalysts for greater changes in the global landscape, as we have seen from the current unrests in the Middle East.. No one knows what will happen in the future, but below is some of what I envision for the emerging markets landscape in the next decade.
India: Kingdom of Dreams
Throughout my travels, I have visited some countries that never cease to amaze me every time I go back, and India is definitely one of them. The country is changing and growing at an incredible pace. In 2010, India?s economy grew by 9.7%, and for 2011 the IMF projects GDP growth to be 8.4%. From 2005 to 2010, India?s economy grew around 6% to 8% each year, an impressive feat for such a large economy. Looking ahead, from 2011 to 2030, EIU forecasts GDP growth to average 6.5% a year, which would make India the fastest-growing large economy in the world during that period.
Egypt
Stock markets in Egypt have been closed since January 30 and those in the Middle East/North Africa (MENA) region declined substantially between January 25 and February 1 as sentiment among some investors turned negative amid the political uncertainty. Other investors have been seeking an opportunity to buy stocks at low prices. The geopolitical ramifications of this unrest are many, not only for Egypt but also potentially for the rest of the world, and for the most part will probably be positive since political reform has been long overdue in the region.
A Unique Offering in Bucharest, Romania
One of the clearest symbols of a market economy is the stock exchange. The Bucharest Stock Exchange (BVB) was inaugurated in 1882, but it was closed when the communist regime took power after WWII. In 1995, the exchange reopened, listing only six companies and holding just one weekly trading session. Less than 10 years later, by the end of 2004, things had changed quite a bit?with more than 70 listed companies and regular daily trading, the market?s capitalization stood at about 17% of Romania?s GDP. Unfortunately, this impressive start was not followed by additional growth.
Digging for Hidden Gems Among Small Caps
Small-cap companies in emerging markets are generally under-researched and not as established as their large-cap counterparts. Some have very short track records, not much background and little publicly accessible information, therefore presenting a higher level of perceived risk and deterring many investors. But for these very reasons, share prices of small?cap companies are less likely to reflect their true value with fewer analysts covering them, thus creating attractive investment opportunities.
Descending a Mine Shaft in the Kazhakstan Steppes
Kazakhstan is becoming increasingly important to us as an investment destination. It has vast natural resources such as oil, gas, copper, uranium and a host of other minerals. As a result of the billions of dollars pouring into the country to develop those resources, we believe Kazakhstan has become the economic engine for Central Asia. We have been investing in both the petroleum and mining sectors in Kazakhstan, and the purpose of this visit was to take a closer look at the mining sector.
Emerging Markets in 2011 ? Strong Economies, Rising Prices
I believe emerging markets are now in a secular bull market, and as discussed below, I expect this trend to continue into 2011. Even more money is likely to be directed into these markets as investors around the world realize that emerging economies on average are growing three times faster than developed economies, and generally have more foreign reserves and lower debt-to-GDP ratios than their developed counterparts.
A Notable Year of Emerging Market Growth
I view 2010 as a year of economic resurgence. Many emerging markets recorded strong GDP growth as they continued to recover from the impact of the 2008 financial crisis. In several cases, robust domestic consumption, government expenditure and intra-regional trade offset weak external demand from developed markets. This led many countries in Asia and Latin America to return to pre-crisis growth levels much faster than expected. China and India were among the world?s fastest-growing major economies during the year, with China overtaking Japan as the world?s second-biggest economy.
Rebalancing the World
We are currently witnessing a largely one-way flow of capital, as money moves from countries of disinflation or deflation to countries with inflation, possibly perpetuating the situation for both. We need to see a rebalancing of the world economy. In recent history, financial authorities in the developed world have encouraged a period of easy credit and loose monetary policy, driving a debt-fuelled rise in consumption. There needs to be more ?balance? in the world economy, so high-savings countries should spend more and develop their own vibrant domestic market as we see in the U.S.
A Tale of Two Countries
Argentina?s economy has been growing at a steady pace since the 2001-2002 economic crisis, typical of a recovery following a period of depression. The country has also benefited from a global environment that has allowed it to enjoy the best terms of trade in more than a century. While the external environment remains favorable, adjustments are needed to sustain Argentina?s economy in the long run.
Leadership Changes in Latin America
In Latin America, we are seeing a large and young population moving up rapidly to the new ?consumer? middle class, but at the same time having one of the lowest loan penetrations in the world. The rise of this consumer middle class and growth in per capital GDP is resulting in an increase in domestic spending, which drives the domestic economy. Secondly, the region has vast resources available at low cost.
Reflections: Venturing into a New Frontier
Frontier markets are the next emerging markets. These economies are more domestic-oriented, with a limited number of publicly listed companies; hence, frontier market investments tend to be primarily limited to private equity. Quality of company management is a frequent concern. Frontier market investing therefore often requires additional time and due diligence to assess the quality of corporate management teams, including more frequent on site visits to evaluate businesses effectively.
Privatization in Romania
Privatization would help the Romania market become more liquid, efficient and productive. Greater transparency, higher reporting standards and more opportunities to invest could attract both local and foreign investors to the Bucharest stock exchange. The market is currently dominated by Romanian residents, who made approximately 70-80 percent of the exchange's trade volume in 2009, but foreign investors play an important part as well. Although they accounted for only 20-30 percent of trades that year, they are often seen as trendsetters.
China: A World-Class Act
Investors in China continue to be concerned about overheating in select sectors, greater inflationary pressures and a widening wealth gap in the country. The Chinese property market, however, is deep and varied, average household leverage is substantially lower than that in the U.S., and the Chinese government has been quick to act to prevent bubbles. While consumer price inflation continues to rise, producer price inflation has begun to subside. Finally, the recent move to increase the flexibility of the renminbi will allow for a slight appreciation.
What are Essential Factors for Japan to Return to its Status as the Rising Sun? (Part 2)
Japan's immigration policy needs to loosen up to help lower labor costs. In addition, the government needs to reduce spending and taxation so that local small and medium-sized enterprises can grow by expanding into the rest of Asia and to business in places such as China, India and Indonesia. That's because small and medium-sized enterprises are a crucial part of the economy that help to create new business and enterprises. In order for those to flourish, the Japanese government must reduce its role in the economy.
Can Japan Make a Comeback?
It seems that everyone is back to moaning and groaning about the Japanese economy. Modest 3 percent GDP growth is expected in Japan this year, compared to a disastrous 5 percent shrinkage of the economy in 2009. Japanese exporters say they are hurting from a strong yen, while the importers are having a field day. While it's true that the Nikkei 225 Index has fallen from a high of 25,000 in 1991 to a low now of less than 10,000, bargain hunters would say that this is beginning to make the Japanese stock market look reasonably cheap.
Learning From Past Crises
Although it is unrealistic to assume that the structural changes implemented in some emerging markets can completely shield them from the effects of future global crises, they seem to have borne the most recent global financial crisis reasonably well. While risks have not disappeared, things look a lot better today than they did 20 years ago. The growing use of derivatives contracts is just one of the many reasons to remain cautious, but some emerging markets' strong fiscal health is cause for hope and optimism.
Private and Public Sectors ? Motivating and Regulating Markets
Even though the government and the private sector have different roles in society, Mobius believes both must depend on a capitalist philosophy in order to be successful. When capital is raised, be it from taxes or from the savings of individuals for investment, it must be put to productive use. A free market model with an ineffective umpire, inadequate regulation and an uneven playing field is likely no better than a government-led model with no real capitalist system of incentives to maximize productivity.
Russia: Insights from Templeton?s Emerging Markets Analyst Conference
Russia was one of the hardest-hit countries during the recent global economic crisis, largely due to its huge dependence on commodity prices. The worst, however, is over. We already saw a sharp recovery for Russia's GDP growth recently when commodity prices stabilized. The Russian oil supply experienced significant growth in 2009, taking most forecasters by surprise. The International Monetary Fund is even more optimistic about Russia's growth, expecting the country's economy to grow by 4.3 percent in 2010 due to rising oil prices and an improving fiscal outlook.
The Emerging Markets IPO Frenzy
In recent years, we have seen a rise in initial public offerings in emerging markets as EM companies begin to recognize the advantages of going to the market to raise capital in order to expand and grow. Investors should proceed with caution, however, before chasing IPOs and short-term gains. Not all listings are created equal. There is generally a lot of promotion surrounding all new listings. It is therefore important to conduct your due diligence and evaluate the stock based on its fundamentals with a long-term investment perspective.
Focus on China: the Renminbi, Commodities and Real Estate
The Remimbi's rise is likely to be gentle and controlled. This move does not dramatically change our overall outlook on Chinese stocks, which we think should perform well in the medium term. While the real estate market may have taken on bubble-like characteristics in some specific areas, the government has been quick to react, to control and prevent bubbles, such as introducing measures to restrict bank lending on second and third home purchases. But overall, I don?t think the Chinese real estate market is in dangerous territory in terms of a bubble.
Results 201–250
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