Chile and Russia: Two Emerging Markets to Take a Look At Today

by Carl Delfeld

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.

Good Investing,


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A Good Entry Point for “Russia’s Google”

Late last month, Yandex (Nasdaq: YNDX) shares went on sale due to an earnings miss. But we think this should be a temporary stumble in what looks like a great company for the long-term.

Yandex, actually based in the Netherlends, is essentially the “Russian Google.” It operates a similar business as Google in Russian-speaking countries. Because of the obstacles of translating Cyrillic, Yandex has a virtual strangle-hold on the region.

For that reason alone, you’d think that eventually Google (Nasdaq: GOOG) or China’s Baidu (Nasdaq: BIDU) would step in and buy the company. But regardless there should be plenty of growth in the years ahead.

Alexander Green recently told Oxford Club members some of the reasons:

"[Two quarters ago], Yandex launched its own browser, a milestone for the company. Search queries are up 31% from a year ago. And two weeks ago, Yandex announced the release of a new search app for Apple's popular iPad. As elsewhere, advertising budgets are shifting online and Yandex is a clear beneficiary.

"Ten years ago, less than 4% of the Russian population used the internet. Today almost half do. That's more than 62 million regular internet users. Among people under 34, the internet is the most-used media, ahead even of television.

"Usage is still climbing. Russia already boasts the most internet users among European countries. But daily internet users there grew 22% last year alone. Here are some reasons why:

"On average, Russians spend 13 hours a month on social networks, compared to 5.9 hours in other European countries.

"The volume of internet trading increased 30% last year, and about 14 million users shop online. Online games are also popular, with 38 million active players in 2011.

"Yandex operates the country's most-visited website, attracting more than 49 million unique visitors a month. The company controls more than 60% of the Russian search market. It's also the leader in Ukraine, Kazakhstan, Belarus and Turkey.

"Rivals like Google (Nasdaq: GOOG) are finding it difficult to cut into Yandex's dominance. Why? For starters, the typical search query in Russia is written in Cyrillic letters, a first hurdle for foreign competitors.

"The Yandex search engine also uses proprietary algorithms and presents results in a neutral and user-friendly manner. It features local knowledge, too. Its search technology allows users to see results in more than 1,400 cities.

"Yandex is leveraging its capabilities in applied mathematics and data analysis - not to mention its in-depth knowledge of local languages and preferences - to offer advanced search technology and state-of-the-art retrieval services.

"The company derives virtually all of its revenue through online advertising. Like Google, Yandex enables advertisers to deliver ads that are targeted, cost-effective and relevant to users' needs and locations. The company currently has more than 193,000 advertisers, including many small- and medium-sized businesses...

"The company is also a buyout candidate. "Whether Yandex continues to grow organically or gets taken over by a suitor, this is a company that's likely to surprise and delight shareholders in the weeks ahead."

- Justin Dove with Alexander Green

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