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
