by Carl Delfeld, Investment U Senior Analyst
Thursday, March 7, 2013: Issue #1985
I can’t tell you how many times I’ve heard this comment.
“Carl, it doesn’t really matter where in the world I invest, because markets always move together.”
Then why is New Zealand (NYSE: ENZL) 18.9% higher and Switzerland (NYSE: EWL) up 17.9% over the last year, while Italy (NYSE: EWI) is down 11.8% and the United Kingdom (NYSE: EWU) in negative territory?
Why is it the Philippines (NYSE: EPHE) surged 41.6%, Turkey (NYSE: TUR) jumped 27.9%, and Thailand rose 18%, while Brazil (NYSE: EWZ) fell 24.3% and India (NYSE: INP) is in the red 3.2% over the last year?
And in frontier markets, the difference can be even starker. Argentina (NYSE: ARGT) is down 40.4%, while the Wasatch Frontier Emerging Small Countries Fund (WAFMX) is up 38%.
And it’s interesting to note that while countries like the Philippines and Thailand are booming, China (NYSE: FXI) is down 3% over the last year
How could all these markets be doing so well as China struggles? It’s simple: They’re competitors to China.
Production is going to other markets in the region. Trade and investment within Southeast Asian countries are also rapidly increasing. During the last decade, foreign direct investment between these countries more than tripled and is four times larger than Chinese investment in the region. And the ASEAN economic union set to be inked by the end of next year will fuel another round of growth.
I could go on with other examples, but you get the point. What country markets and, in turn, what stocks you choose, make a tremendous difference in performance.
Look for Value and Momentum
Some of these Southeast Asian markets have gotten a bit expensive for my taste. But the wall of capital flowing through this region is likely to continue for some time. Feel free to sprinkle some of these ETFs in your global portfolio, but always use a trailing stop loss, as these markets can be volatile.
If you have the time, you can of course do much better, with more risk, by rifling in on specific stocks. But whether you’re picking country ETFs (haystacks) or stocks (needles), I’ve learned the hard way that the best strategy is to look at the extremes of value and momentum.
On the momentum side I would look at Chile (NYSE: CH), a market up 6.7% over the last three months while other Latin markets are fading. CH is down 20.5% over the last two years as copper prices have been weak, but prices are flattening out and foreign direct investment surged 63% last year.
On the value side, despite all the corruption and political meddling in the Russian economy, its stock market, and the Market Vectors Russia ETF (NYSE: RSX), is dirt cheap, trading at only 5.9 times earnings. Russia finally joined the World Trade Organization (WTO) late last year. The World Bank optimistically estimates this could boost its growth rate by up to 3% per year. In addition, maybe up to now, protected industries will get moving through a dose of badly needed international competition.
Second, Russia, as a Pacific Rim nation, is stepping up its trade and investment outreach to countries such as China, South Korea and Japan. In fact, over the past five years, bilateral trade with Japan has already doubled, and trade with South Korea has tripled. Russia’s trade with China is now 60% higher than with Germany. This trend will accelerate as the Pacific century unfolds.
In addition to ample supply of energy resources, Russia has geography in its corner. It takes only two to four days to get raw materials from Russia’s Asian frontier to China, compared to weeks for many of its competitors. Finally, despite the bad headlines, the Russian economy is chugging along pretty well with about a 4% growth rate.
So don’t be lulled to sleep by the myth that all markets move in tandem. Be alert for the country opportunities showing great value or momentum.
CarlChile and Russia: Two Emerging Markets to Take a Look At Today,