My picks - IBN and HDB And US banks - C, JPM, Wells Fargo, XLF etf Great buying opportunity today --------------------- http://online.barrons.com/article/S...ml?mod=rss_barrons_this_week_magazine&page=sp Home > News & Commentary > This Week's Magazine > Features MONDAY, SEPTEMBER 29, 2008 FEATURES MAIN It's Time to Revisit Emerging Markets By LESLIE P. NORTON Turbulent, yes. But they look cheap again -- and they're our future. TEXT SIZE PRINT EMAIL DIGG SINGLE PAGE REPRINTS GET RSS Subscribe Now With these readers: Or copy the rss link: FOR THE BETTER PART OF A YEAR, Ben Inker was worried about skyrocketing emerging-markets shares. Rising commodity prices, rampant global outsourcing and rapid industrialization had shoved valuations to big premiums over older, more stable markets like the U.S. Inker, a bright Yale grad who oversees the asset-allocation division of money-manager Grantham Mayo Van Otterloo, finally threw in the towel in July, as the U.S. financial crisis worsened, European and Japanese economies appeared stalled, and commodities prices plunged. Jeremy Grantham, GMO's chairman, subsequently said the well-respected asset manager was "underweight" the bourses of the developing world, and that U.S. shares would produce greater returns. Thomsa Michael Alleman Pimco's Mohamed El-Erian: A U.S. financial-stabilization program should produce "an even sharper rally in emerging markets than U.S. equities." Smart call: Brazil is off 23%, Mexico 13%, Russia 43%, China 16%, Korea 12%, versus a 3% decline for the U.S. since July. BUT JUST A FEW MONTHS LATER, Inker and GMO are rethinking their stance. "They've fallen far worse than everybody else, and probably are once again cheap relative to the world's other equity markets," says Inker. "Life is surprisingly different." Mohamed El-Erian, the emerging-markets expert who is now the co-chief-investment officer of Pimco, is even more optimistic. He cites the markets' superior growth and favorable wealth-dynamics, even though the U.S. financial crisis caused many fund managers to repatriate their capital from markets that, in hindsight, were probably too small and narrow to accommodate the flows. "Is there a cyclical case now for emerging markets? Yes there is," says El-Erian. If it finally comes together, Washington's financial-stabilization plan "is not only going to stop the rush out the door, but attract new interest. Technically, you'll see an even sharper rally in emerging markets than U.S. equities. I'd at this point be looking to buy the [MSCI Emerging Markets] index." Even if the next rally doesn't quite look like the straight-up trajectory that troubled Inker, it holds the prospect of reversing recent losses based on strong -- but not as strong -- economic growth. Virtually all of the experts Barron's checked with last week cautioned investors to steer clear of frontier markets like Pakistan, and to channel more funds toward either broad indexes or more robust economies like China's. There are plenty of obstacles to help keep growth from getting out of control. Third-quarter results are likely to be a bloodbath for emerging-markets funds, which are down 22% quarter-to-date, and 33% so far this year -- something Barron's predicted last summer ("Is the Bloom Off Emerging Markets?," July 30, 2007). As oil and other commodities collapsed, Asia outpaced Latin America in the third quarter. Investors yanked cash from funds focused on the developing world as the financial crisis worsened this month. "Appetite has dwindled, even as relative optimism about U.S. shares rises," says Michael Hartnett, the emerging-markets strategist for Merrill Lynch. "Global investors are being forced to sell anything they can't pronounce. You're starting to see distressed valuations," he says. Table: Where Investors May Turn FirstThe jitters rose last week as Washington struggled over the terms for a bailout bill for Wall Street. In Hong Kong, false rumors about Bank of East Asia's solvency sent stocks plunging. The declines also disabused remaining fans who prized the funds for theoretically low correlation: In fact, they're 80% correlated with the Standard & Poor's 500. And as world markets sag, emerging markets fall right along with them. One key fact to remember: This financial crisis didn't start in the developing world as so many did in the '90s -- Mexico's '94 peso devaluation, for example, or Thailand's '97 decoupling from the dollar, or Brazil's depreciation of its currency, the real, in '99. Conditions in developing countries haven't been this good in years. They may be at their best since MSCI launched the index exactly 20 years ago. China, Malaysia, Taiwan and Russia are all building current account surpluses. Thanks to the boom in commodities, Brazil in January became a net creditor, and joined the ranks of investment grade sovereigns in the spring. Continued here: http://online.barrons.com/article/S...ml?mod=rss_barrons_this_week_magazine&page=sp -------------------------------------------------------------------------------- E-mail comments to mail@barrons.com
Why would you buy emerging markets? I don't understand. Steel and carbon are collapsing as well as fertilizer and ag related stocks. The BDI index has been decimated. Such gigantic drops may be telling a different story.