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International Investments



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International Investments - Inflation Fighters Emerge

By Gary Scott

We saw in last Thursday’s message that May 2006 was the second worst month for emerging markets this decade. Markets fell overall 10.5%. You also saw that Keppler’s Top Value Emerging Markets did not drop at all despite this drop.

Later this week you’ll see my portfolio and see that I am adding emerging markets. I think the market is wrong. Here are some reasons why.

First, fundamentally globalization of commerce of markets and of life is the trend. Emerging markets will emerge.

Second, emerging markets are safer than major markets. These new growing markets are the ones with the real opportunity and safety in the future. This is reality. Investors though look back instead of ahead and think that the aging markets which are bloated with debt, bureaucracy, underfunded pensions, medical crisis and unhealthy, aging, overweight populations are the safe places.

Third, positive carry will remain. One fuel in the previous emerging market boom was low interest Japanese yen, Swiss franc and US dollar loans that were invested into emerging markets. One reason for the recent crash is the markets’ belief that this liquidity will dry up. I have been writing about Borrow Low- Deposit High for over 20 years. There are always some currency differences and emerging markets always pay higher yields. Until market risk equalizes globally (probably not in our lifetimes), there will be distortions in interest rates and hence positive carry. Back in the early 90s, we were borrowing yen at 4.75% to invest in Mexican pesos at 18%. Earlier we were borrowing Swiss francs at almost zero percent to invest in US dollars at 18%!

Finally and perhaps most important, inflation is rampant in the US and I believe it has just begun. This will push US dollar interest rates high and make business more attractive in emerging countries. More US businesses and Yankee ingenuity will move abroad and help the emerging markets grow.

So let’s look again at emerging markets Here are Keppler’s current value rankings of these markets:

Emerging Markets

Current Ratings & Valuation Characteristics

  Price to Book Value Price to Cash Flow Price to Earnings Dividend Yield Cash Flow Return on Equity Return on Equity
BUY CANDIDATES AVE. (Top Value) 2.05 7.9 13.2 2.72 25.9 15.5
Brazil 2.30 6.7 10.7 3.33 34.2 21.6
China 2.24 7.6 14.0 2.44 29.6 15.9
Korea 1.68 7.0 11.3 1.77 23.9 14.9
Malaysia 1.88 9.6 15.2 2.77 19.5 12.3
Philippines 2.12 8.2 15.5 2.30 26.0 13.7
Russia 2.52 10.5 14.7 1.60 24.0 17.2
Taiwan 1.91 10.2 18.5 3.81 18.7 10.3
Thailand 2.09 6.7 9.7 3.88 31.1 21.5
Turkey 1.95 6.9 13.7 2.61 28.1 14.2
 

SELL CANDIDATES AVE. (Low Value)

3.42 11.2 16.7 2.48 30.5 20.5
Argentina 3.16 8.4 14.0 1.19 37.4 22.6
Egypt 4.47 13.8 20.5 1.48 32.4 21.8
India 4.2 15.9 20.1 1.26 26.4 20.9
Indonesia 3.26 9.4 14.4 2.84 34.6 22.7
Jordan 3.31 17.3 32.2 2.62 19.1 10.3
Mexico 3.00 9.7 14.2 1.53 31.0 21.0
Morocco 3.42 13.1 23.7 3.76 26.1 14.5
Pakistan 3.04 8.2 10.8 5.13 37.1 28.1
South Africa 3.46 12.1 15.6 2.50 28.7 22.1
 
NEUTRALLY RATED AVE. 2.25 9.4 15.0 3.42 24.0 15.0
Chile 1.86 11.0 21.9 3.02 16.8 8.5
Colombia 2.93 26.4 22.8 1.94 11.1 12.8
Czech Republic 2.23 9.1 20.9 2.46 24.6 10.7
Hungary 2.79 6.9 11.7 2.83 40.5 23.9
Israel 2.66 14.4 17.2 2.09 18.4 15.4
Peru 2.93 6.6 14.4 3.21 36.8 16.7
Poland 2.42 6.6 14.4 3.21 36.8 16.7
Sri Lanka 2.13 22.8 23.8 1.83 9.3 8.9
Venezuela 1.40 5.2 8.8 7.12 27.1 16.0

Learn more about fighting inflation by investing in emerging currencies, gold, silver, Ecuador, import-export, overseas markets and more. Join Merri, Thomas Fischer from Copenhagen and Steve Marchant from Ecuador and me at our September 15-16-17, 2006 International Business and Investing Made EZ course in North Carolina. Review where to invest and do business now and learn which markets and currencies may be strong in the year ahead. Learn more about Ecuador import and export from Steve. Our May course was overbooked and the September up date is coming along. Our free accommodations here on the farm are reserved on a first come first served basis so do not delay! Go to http://www.garyascott.com/catalog/ibeznc

Gary

June, 2006

 

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