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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (26809)	12/24/2007 7:14:31 AM
From: elmatador	Respond to of 217705

Sticking With Emerging Markets not better spot to sink some money the past five years than emerging markets Interview with Arjun Divecha, Partner, GMO By SANDRA WARD online.barrons.com THERE'S BEEN NO BETTER SPOT to sink some money the past five years than emerging markets. To learn whether they will continue outperforming, we turned to Arjun Divecha, who oversees $25 billion in emerging markets for Boston-based GMO. Investing in countries trading at the best relative values and on the cusp of major positive change has been Divecha's ticket to distinguished performance the past 15 years. GMO's flagship Emerging Markets fund has gained 13.89% a year since its inception in 1993, compared with the benchmark S&P/IFC Investable Composite's 9.87%. The GMO fund's 38.85% a year on average the past five years edges out the benchmark's 37.61%. And underweighting China and India has cost the fund only slightly the past few years: It is up 31.84% year to date, compared with 34.69% for the benchmark. He explains why he still favors Brazil, Thailand, Taiwan and Korea and is growing fonder of Russia. Barron's: Emerging markets is the asset class that just won't quit. Divecha: Growth in emerging markets is very solid and has a larger and larger domestic component to it, which is not affected by problems in the West. Traditionally, when you had any kind of warning of problems in the U.S., the first thing investors did was pull their money out of the riskiest places, like emerging markets. But that hasn't happened this time. They have chosen to be where the growth is. If you look at mutual-fund flows in the past three to six months, you will see there has been quite a lot of money withdrawn from U.S. mutual funds, and a lot of money has gone into emerging-market funds. One of our large university endowment plans told us they were not pulling back from emerging markets because they now viewed them as a safe harbor. They don't consider the growth as being vulnerable. Heresy. It isn't heresy. It used to be heresy, but today it is reality. Things are really good in a lot of these countries. The question is: Are emerging markets in a bubble, or could this become a big bubble? Western central banks are trying to pump liquidity into the system because they are worried, and that liquidity has to go somewhere. This time -- instead of flowing into tech stocks, instead of flowing into housing -- this time liquidity is flowing into emerging-market equities. Emerging markets are trading between 16 and 18 times earnings, and how many bubbles do we know of that ended at 16 times earnings? Not many. So with the strong mutual-fund flows, you could easily get to 30 times earnings, double current levels, before this is considered a bubble. Do you see a bubble forming? I don't think so, although it is possible. I expect modest returns. There are three simple things that drive returns: One is valuations, one is earnings growth, and another is currency values. The long-term historical average for emerging markets has been about 14 times earnings, and we're above that. To the extent people are really bullish and optimistic, then you can justify having higher P/E ratios, and so maybe they don't fall to 14 right away. But it is hard to make the case that you make a lot of money from P/E expansion unless you get the kind of a bubble I talked about. The main reason emerging markets have done so well in the past five years is because earnings growth on average has been something like 27% or 28% a year on average. Earnings forecasts for the next year are for 18% growth, but that is very vulnerable to a U.S. slowdown. Knock that back by 50% to 9% earnings growth, which is what you would expect the market to go up if the P/E doesn't expand. Then the final component is currencies, and there's already been a fair amount of currency appreciation relative to the dollar in the past year, so it is hard to say these currencies are going to appreciate hugely against the dollar. Earnings growth will be what drives emerging market returns. That is slowing, and returns are going to amount to about 10%. Arjun Divecha Have clients taken money off the table? All the smart clients have been rebalancing. Think about this: If you had 5% of your money in emerging markets in 2003, it has appreciated 450%. You have to be cutting back if you don't want 25% of your overall assets in emerging markets. The main thing that has kept people from taking more money out is they don't know where else to put it. In a world where there is very little that seems attractive, emerging markets aren't that bad. A year ago your favorite countries included Taiwan and Thailand. It turns out that the four countries we liked then are still the countries we like the best this year: Brazil, Thailand, Taiwan and Korea. What's different is that Brazil is our favorite now. Brazil's economy grew 5.7% in the last quarter, which is the highest we have seen in a number of years. Investment growth has been quite high. Their trade surplus will hit $40 billion this year. And real rates, even though still high, have been starting to come down. Are commodities a big part of that story? It is becoming more and more a domestic consumption story. People can afford to buy houses and cars. Yes, Brazil is a big exporter, and exports have done very well for it because of commodities, but the domestic economy has really started to do well as consumer consumption has picked up. The market is relatively cheap at only 10 to 12 times earnings, certainly much cheaper than other emerging markets. Taiwan was your old favorite. Other countries have become more attractive. Taiwan represents a very simple idea. It is a cheap emerging-markets technology play. That's attractive because technology is becoming a bigger and bigger part of all of the emerging markets. Taiwan is where they get personal computers, cell phones and computer monitors and laptops. There is great demand for all these items in China, in India, in Brazil, and Taiwan is a play on that. Korea is a more complicated case, but it is similar to our case for Taiwan: It is cheap, and it is dependent on exports of technology. What changed your view on Taiwan? Politics, for one thing. There is a presidential election coming up. The party in power right now is the DPP, which has been a very anti-China party, and their actions have been viewed with great suspicion by the Chinese and, therefore, the cross-border links are not in particularly good shape. The expectation has been the other party, the KMT, which was historically the party that ruled Taiwan, would win the election, and the relationship with China would improve dramatically. But it turns out that the KMT candidate has been accused of corruption, and there is a chance that he will be sentenced to jail and he will not be able to run for the presidency. There is a lot of uncertainty about the politics and therefore their relationship with China. That has played a fairly major role in keeping the Taiwanese market cheap. The government also eased capital controls, and capital outflows the past six years have been on the order of $200 billion. Our weighting in Taiwan has gone from about 8% overweight to about 4% overweight.

To: Elroy Jetson who wrote (26809)	12/24/2007 11:48:15 AM
From: Maurice Winn	Read Replies (2) \| Respond to of 217705

They aren't quite slaves Elroy. It's more that they are so lacking in value that they are dependants stuck with earning no more than a bit of food. There's a song about "You load 16 tons, and what do you get? Another year older and deeper in debt. Saint Peter don't you call me coz I can't go. I owe my life to the company store." That's the same idea and people talk about wage slaves in the 'free' world. It's just worse and harsher in places like Brazil. Citizens are more like slaves than those people, because we legally have no means of escape and must do and not do all that the proprietors say. They say PLENTY. Our very own buddy here, Tobago Jack, is in favour of shooting people and children in the back who try to escape. He is in favour of murdering Taiwanese if they try to expand their escape into true freedom meaning telling Hu Jintao to go to hell. But almost nobody likes the idea of tradable citizenships. It's not that they even understand the idea; just as slaves have trouble with the idea of freedom = people think what they are suffering is normal and even like it, like Stockholm Syndrome and beaten wife syndrome. It's hilarious TJ going on about "freedom" in Hong Kong. Yes, compared with other countries, there is freedom, but it's still far from free in a meaningful sense of the word. The PLA didn't go driving in with trucks full of guns because it's "free". Mqurice

To: Elroy Jetson who wrote (26809)	12/25/2007 12:20:55 AM
From: elmatador	Read Replies (1) \| Respond to of 217705

if the total wealth or “capital” of the US were distributed evenly, each person there would have access to $512,612 in capital, compared to only $19,351 in the Philippines. That is why an industrious and law-abiding Juan earns more there than here, and more than other workers there. This proves my point that as capital spreads more evenly, the champions of the past will not last 30 seconds of the first round. Knock Out. Hospital. Now, wehn Elmat talks about capital spread more evenly, people should really read and get worried. We are coming!!!! Focus on intangible capital Cebu Daily News First Posted 03:04pm (Mla time) 12/24/2007 Why does the Filipino worker mightily succeed when he is in the United States, but not when he is back home? A heart-warming fact: according to our consul general in New York, Cecilia Rebong, the Filipino professionals in the United States earn comparatively more than their counterpart native Americans. Why? The answer may lie in a World Bank (WB) report on the “Wealth of Nations.” The study shows that if the total wealth or “capital” of the United States were distributed evenly, each person there would have access to $512,612 in capital, compared to only $19,351 in the Philippines. That is why an industrious and law-abiding Juan earns more there than here, and more than other workers there. To be sure, the WB explains that there are really three kinds of wealth: (1) natural capital – “the sum of nonrenewable resources (including oil, natural gas, coal and mineral resources), cropland, pastureland, forested areas and protected areas”; (2) produced capital – “the sum of machinery, equipment, and structures (including infrastructure)”; and, (3) intangible capital that encompasses raw labor, human capital (the sum of knowledge, skills and know-how of the population), social capital (the level of trust among people in a society and their ability to work together toward common goals) and the quality of institutions essential to good governance, like an independent judiciary, clear property rights, effective revenue collection, nonpolitical military, credible elections and stable rule of law. Worldwide, natural capital accounts for only 5 percent of total wealth, produced capital for 18 percent, and intangible capital for 77 percent. On the average, every one in the world has a total wealth of $90,000, an amount available to those in Brazil ($87,000), Libya ($89,000) and Croatia ($91,000). This world average is much more than the Philippines’ $19,351, broken down into $1,549 natural, $2,673 produced and $15,129 intangible. While natural resources help, they are not the most important wealth. Singapore has zero natural capital but is credited with $79,011 produced capital plus $173,595 intangible capital for a total of $252,607. Japan has only $1,513 natural (same as ours) but has $150,258 produced plus $341,470 intangible for a total of $493,241. The WB study shows that more than three-fourths of the total wealth of the world is intangible. Further, the most significant elements of intangible wealth are education and the rule of law. These two facts imply that while the natural resources and infrastructure priorities of President Macapagal-Arroyo deserve some attention, the much more important focus should be on our intangible capital, like the primacy of education, the promotion of the rule of law, and the strengthening of our democratic institutions. These are the truly lasting legacies. – Artemio Panganiban, Inquirer

To: Elroy Jetson who wrote (26809)	12/25/2007 6:59:44 AM
From: elmatador	Respond to of 217705

OECD says Brazil must control social security deficit, improve education Oh what is that!! A slave country being told to control social security? Should the OECD not say -to the slave country- that it should INCREASE rather than control social security? Please read on and educate yourself. :-) OECD says Brazil must control social security deficit, improve education RIO DE JANEIRO, Brazil: Brazil must rein-in its bloated social security deficit and improve education if it hopes to spur economic growth, the Organization for Economic Cooperation and Development said Friday. The OECD said in a report that reforming Brazil's public pension system was "essential" for the well-being of South America's largest economy. "Public spending on pensions accounts for a higher share of GDP in Brazil than in the average OECD country, despite Brazil's younger population," the report said. The Paris-based OECD groups 30 member countries, most of them European, sharing a commitment to democratic government and the market economy and works with some 70 other countries to foster good governance in public service and corporate activity. Brazil is an associate member of the group. Brazil's gross domestic product expanded by 2.3 percent in 2005 and is expected to grow 3.5 percent this year, lagging growth rates in other developing countries. Today in Business Merrill Lynch sells stake to Singapore firm A threat so big, academics try collaboration Fine line: Shielding elders' money, and independence The government's pension system is expected to post a record deficit of around 40 billion reals (US$18.6 billion; €14.3 billion) this year. Bernard Appy, executive secretary for Brazil's Finance Ministry, said that the government was aware of the need to cut the social security deficit, but that it had to be done in a way that was "socially just." "There is certainly a concern within the government to manage the social security system to contain expenses and allow for growth," Appy said. Luiz de Mello, chief of the OECD's South America department, said Brazil's other major challenge was to raise its citizens' education level. "Brazil is not only behind developing countries but it is also behind other countries with a similar income level," Mello said, adding that while Brazil has made advances in schooling a greater number of students, the quality of that education still could be improved. While the report was generally upbeat about Brazil's economy, it said critical bottlenecks include a high tax burden, high interest rates and poor levels of infrastructure investment.

To: Elroy Jetson who wrote (26809)	12/25/2007 7:12:31 AM
From: elmatador	Respond to of 217705

2007 ``exceptional'' 2008 will be ``infinitely better''. will expand 4.5 percent in 2008, down from 5.12 percent this year, according to the economists' survey. bloomberg.com Which collapse? We are booming!!

To: Elroy Jetson who wrote (26809)	12/26/2007 12:54:25 AM
From: elmatador	Read Replies (1) \| Respond to of 217705

Sticking With Emerging Markets -- Part II And Korea? It is cheap. The other positive is the presidential election. The new president, Lee Myung-bak, is a businessman from the construction industry. He is more likely to focus on income generation and growth rather than on redistribution of wealth as the past president has done. That will be good for the economy. This will be a far more pro-growth and pro-business kind of administration. Where have you redirected money if lightening up in certain countries? This year, for example, we have been moving money into Russia. Russia used to be one of our least favorite markets, and at this point it is kind of in the middle. I wouldn't say it is our absolute favorite, but it is no longer something we dislike a lot. What has given you more confidence in Russia? One, there is very strong domestic growth. You are starting to see almost Chinese-type levels in terms of new housing construction and new stores. That is being fueled by the high oil prices. But unlike other oil countries, such as Venezuela, for example, Russian oil wealth is making its way to the average person and is improving the standard of living of the average person. The average Russian is much, much better off today, and their ability to spend is much better than it was 10 years ago. They are buying houses. They are buying cars. Everything to do with the domestic economy looks really quite attractive. Let's turn to "Chindia." India has benefited hugely from this misperception of Chindia. By linking China and India together, people think that India is in the same league as China when, in fact, it is not. Let me give you a few numbers: In global zinc consumption, China consumed 29%, India consumed 3.8%; aluminum, China consumed 25%, India consumed 2.6%; oil, China consumed 9% of global oil, and India consumed 3% of global oil. These countries are not compatible. They are not even in the same league. India has got a whole lot of capital that it would not have gotten if people had thought of it separately. India is where China was 15 years ago in terms of per capita consumption. It is a great growth story, but equating it with China has meant a lot of global liquidity has flowed to it and helped India's performance. It has made Indian stocks quite expensive, and that's why it is our least favorite country. The economic story is terrific, the valuation story is not. The whole world loved the Indian software sector three or four years ago, but it has underperformed the emerging-markets index by 90% over the last three years. So shouldn't this be an opportunity for Indian software stocks? They are starting to become attractive, yes. But remember, they have also been hurt by India's currency appreciation, and therefore their competitiveness has gotten worse. Nobody loves the software stocks anymore, but everybody loves the infrastructure stocks. These stocks have gone up 10 to 20 times in the last five years. Just to give you an example, two of the biggest Indian infrastructure stocks: One is the cement and infrastructure company Larsen & Toubro, which now has a market cap of $31 billion and trades at 37 times forward earnings and a price-to-book ratio of 11; similarly, the biggest company, Bhel, which makes heavy electrical equipment, has a market cap of $30 billion, a forward P/E ratio of 29 and is trading at 8½ times book. These are, when you really get down to it, commodity companies. You are paying 30 to 40 times earnings for commodity companies. That's a lot. As a guy who works for us in Singapore says, "Excess enthusiasm plus expensive equals underperformance." How do you feel toward China? China we don't like, either. Although, I want to caution you on China because China could be in the beginning stages of a fairly large bubble. I'm not predicting it. I'm just saying it's a possibility. There is a huge flood of money coming into the country as exports lead to massive amounts of capital inflows...so large the central government has not been able to sterilize them. Explain what sterilizing is, if you would. Basically issuing government bonds to keep the money supply from growing too much, because otherwise there is the risk of inflation. The money supply has been growing at the 15% to 17%, about in line with GDP growth. But now it has suddenly stepped up to 25% or 30%, and in the last few months inflation has gone up to 6.9% in China. That in and of itself could be a problem, but that is not what I'm focused on. I am focused on short-term interest rates at 3½%. If you are a saver in China, you are getting 3½% from the bank while inflation is at 6.9%. You can't take money out of the country. So what are your options? Real estate and the stock market. That is why the stock market has gone up so much this year. This trend isn't changing any time in a hurry. We are underweight, but not severely underweight, China. We have about a 12%, weighting compared with 15% to 16% for the benchmark.