Are Emerging Markets A Lost Cause?
Occasionally, someone'll ask for my opinion on emerging markets, where that almost always means EM equities.
I used to write more (much more) on EM than I do these days. Turkey once featured prominently in these pages, for example, due to my long-running interest in the life and political arc of Recep Tayyip Erdogan.
The problem (if that's the right word) was just that my EM coverage choices were informed more by my personal areas of interest than they were by the flow of relevant news. That's
Good article, I usually allocate to EM when the dollar is declining but that strategy is too simplistic. You are correct about not being unable to understanding the idiosyncratic risk of each country, region, city, and company.
I think there is a medium-term case for India as a mini-China, at least in EM investors’ eyes. Modi and the large Indian conglomerates are still aligned, it feels like. Some trades in other EMs on reform hopes, if one doesn’t stay around long enough to be disappointed. But the difficulties of stock-picking in EM for a US based investor are significant, so ETFs feel like the tickers to own, or download the holdings lists of the better EM funds and use their large and growing positions as the start of a screen.
China is a case of fool me once, fool me “n” times.
we all do sir
EM and China is all about getting the risk right.
Passive is an awful way to invest in these…
EM’s are way better than in previous cycles…stronger CB’s, deeper Domestic markets, more diversified.
(And DM’s are acting more like ‘EM’s’ all the time…politically, structurally, economically, debt-wise, &tc.)
Stay tuned, but the world is likely to source heaps of diversification and growth beyond the S&P7…and these can be important areas to consider opportunities.
I get enough exposure to EM via large US based multinational corporations that do business in the desired EM. For example, 9% of P&G’s sales are in China, 8% are in the Asia Pacific region, 7% are in Latin America and 5% are in India, Africa and the Middle East.
Frankly, I get all the EM participation I care for just by owning US equities and funds that involve significant overseas involvement. Over the years I see some individual firms that seem interesting, but mostly that happens at the wrong time and I get hammered on currency translation. While I see China as a major economic power, even now, mostly because of its huge call on the world’s major resources. Xi may screw it up for everyone but I don’t think even he can destroy it. India on the other hand, regardless of its stock market, which is actually no reflection of real economic power, is a clear also ran. While India has a slightly larger total GDP that the UK, for instance, the per/capita GDP in India is roughly $2600/yr. One cannot create a growing consumer economy when the per/capita GDP is just a bit over half my annual cable/internet bill. More than half India’s population is deeply rural and in those areas 25% of the population has access to electricity less than eight hours a day. Half of rural residents receive less than 12 hours electricity access per day. Most of the rural population and even many of the urban dwellers suffer from a lack of potable water and significant food insecurity is rampant. When you add in the social issues, including the miserable treatment of women and other factors, in my view this is not an emerging nation ready for launch. It is the largest of the very poor nations on earth and I wouldn’t put a nickel in that hole in the ground.
I spent some 30+ years covering EM on the commercial/correspondent side for a NY bank – MiddleEast, Africa, E. Europe, Latam. Do I consider my career wasted? Nope – I had a great job, made some money for the company, and met all sorts of folks, fun, interesting, and terrible. But I agree with Emptynester and Mister Lucky – get your EM exposure through US and European MNC’s . At some point I decided I wasn’t smart enough to deploy my own money in those markets and took my few chips off the table. When I started out in the business, we talked about LDCs, a term that has fallen out of use. Our chief credit officer always said, “There are no LDCs, only NDCs (never developed countries).
You also used to write a lot about Italian politics. I guess you stopped covering that for similar reasons?
I think it’s okay to cover something that’s niche, even if it isn’t quite so relevant to the greater macro picture. So long as it’s interesting, you know a lot about it, and you can say something interesting, why not? After all, you have to come up with content somehow…
You’ve been lamenting lately how you have no choice but to cover boring-but-relevant content; why not avail yourself of the interesting things when they present themselves? If one article in 20 were about Mongolia next year, I promise readers would look forward to those more than the latest homebuilder sentiment update, regardless of relevance.
Yeah, but you gotta think about the 85% of readers who are here for the macro updates, my editorializing around analyst commentary and market coverage. They see something about Mongolia and they think “Why am I here?” That said, you’re generally right. As for Italian politics specifically, it just became far too convoluted relative to its macro relevance, but the other thing that slowed that coverage down was Draghi’s stint at the helm. That kinda/sorta normalized things such that it wasn’t as interesting anymore. Obviously that’s over now, so maybe I’ll return to it.
While not questioning your familiarity with your subscriber base, I say publish all you want or need to about homebuilder sentiment or MMF flows, but I subscribe to this blog more holistically. Why am I here? I’m not exactly sure if I’m honest. In fact, that’s probably my best endorsement for why I am here. I am here because I’m never sure what might be covered, but find everything well-reasoned and consistent (a rarity these days), often thought provoking, and well beyond my level of expertise. Whether that pertains to dealer gamma or geopolitics makes no difference to me. So if you want to post 10x in a row about Turkey, I’m all eyes.