Is This A Good Time To Invest In Emerging Markets ?

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Emerging markets used to be a hot destination for investors a few years ago. Nowadays these markets have become more of  submerging markets with equities hit hard due to the collapse in commodity prices and other factors. Countries that are major oil exporters such as Brazil, Russia, etc. are suffering with the fall in crude oil prices. Many investors are avoiding from emerging markets as they continue to go from bad to worse. However astute investors can nibble at emerging stocks at current levels since commodities alone do not determine the future of all these countries. Here is an excerpt from an article by Charles Wilson, PhD at Thornburg Investment Management:

Correlation is not causation when it comes to emerging markets and commodities.

The term “risk assets” has become widely used to describe anything that goes up when the U.S. dollar goes down. Perceptions around the pace of U.S. monetary tightening substantially influence the greenback’s movements. In recent years, risk assets have come to include everything from junk bonds to Chinese steel prices or even Italian banks. In our view, many people have mistakenly confused the correlation between asset prices with causation, especially relative to prices of two asset classes in particular—commodities and emerging market equities. The underlying assumption being that emerging markets are driven by commodity prices. We don’t think that’s really the case on a fundamental level. Most countries in the MSCI Emerging Markets (EM) Index benefit from lower commodity prices in general, especially oil. This makes sense considering that about 90% of the companies in the MSCI EM Index are domiciled in countries that are net importers of energy, as shown in figure 1.

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Oil Price Impact on Emerging Countries

Source: Can Emerging Market Equities Work If Commodity Prices Don’t? by Charles Wilson, PhD, Thornburg Investment Management

The following chart shows the performance of the MSCI Emerging Markets Index:

MSCI Emerging Markets Returns by Year

Source: MSCI

Five constituents of the MSCI Emerging Markets Index are listed below for further research:

1.Company: Ultrapar Participacoes SA (UGP)
Current Dividend Yield: 3.23%
Sector: Oil, Gas & Consumable Fuels
Country: Brazil

2.Company: Banco De Chile (BCH)
Current Dividend Yield: 4.63%
Sector: Banking
Country: Chile

3.Company: HDFC Bank Ltd (HDB)
Current Dividend Yield: 0.59%
Sector: Banking
Country: India

4.Company: Standard Bank Group Limited (SGBLY)
Current Dividend Yield: 9.71%
Sector: Banking
Country: South Africa

 5.Company:Fomento Economico Mexicano SAB de CV (FMX)
Current Dividend Yield: 1.52%
Sector:Beverages
Country:Mexico

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • iShares Core MSCI Emerging Markets ETF (IEMG)

Disclosure: Long BCH

UK’s FTSE 100 Index Has Gone Nowhere Since 1999 ?

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FTSE 100, the benchmark index of the UK equity market peaked at 6,930 in December, 1999. After 17 years, the index closed at 6,125 yesterday, which is lower than where it was in 1999 – when the dot con mania was at the highest level. Does that mean the index has gone nowhere since 1999? Or put another way does this mean investors in UK stocks lost money over such a long period of time?

Well. The FTSE 100 being lower now than in 1999 is true as the chart shows below:

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FTSE 100 Index Long Term Returns

Source: Yahoo Finance

However this does not tell the whole story in terms of investor returns. This is because the FTSE is a price index and measures only the price appreciation of the components. The return of the FTSE 100 does NOT include dividends. So if dividends are included in the index, similar to the DAX index, then the return is much higher and the index now is far higher than where it is now based on price alone. So statements like “The FTSE 1oo has gone nowhere since 1999” are misleading to investors.

The correct way to measure the performance of the FTSE 100 over long periods is to use the FTSE 100 Total Return Index which includes dividends reinvested. Using this index, we can see investors did not lose money since 1999. The chart shows the difference in returns between the FTSE 100 and the FTSE 100 Total Return Index:

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FTSE 100 vs FTSE 100 Total REturn Index Long Term Return

Source: Sharescope

Since UK firms especially those in the FTSE 100 pay dividends it just makes sense to include those in the return calculation. Moreover dividends are an integral part of total returns. Including dividend return is more important in countries like the UK where dividend yields are much higher at around 3.98% which is nearly double that of the US market.

In summary, investors have to dig deeper and understand what an index is comprised of and how the return is measured before coming to any conclusions. Simply looking at the headlines that media report or not including dividends in performance calculations is not a wise strategy.

Related ETF:

  • iShares MSCI United Kingdom ETF (EWU)

Disclosure: No Positions

The World’s Top 20 Container Ports 2014 by Cargo Capacity

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Ships carry much of the global trade goods across countries and continents. Over 5,000 commercial ships transport all types of goods cheaply and efficiently across vast distances.

The graph below shows the world’s largest container posts in 2104:

Worlds Top 20 Container Ports 2014

 

Source: Trade – The whole world in boxes, Deutsche Welle

Asia has emerged as the largest region in terms of trade goods’ export and import. As the above chart shows, none of the North American or European countries are in the top 10 spots. Though LA and Long Beach are major ports in the US, in terms of cargo capacity handled they pale in comparison to Shanghai or Shenzhen.

Infographic: Cargo Delivery to the International Space Station

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The International Space Station(ISS) flies about 205-270 miles high above the earth. Have your ever wondered how cargo gets delivered to the space station?

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International_Space_Station

Source: Wikipedia

The following infographic shows how cargo gets transported to the ISS:

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Cargo Delivery to Space Station

Currently four types of unmanned vehicles deliver supplies to the ISS.

Source: How Cargoes Are Delivered to ISS, Sputnik

Being so high in the space, one gets a wonderful view of the world below the ISS. Here is how New York City looks from space as taken by NASA’s Scott Kelly:

New York City from Space

Source: NASA

 

 

Two Charts on MENA Markets

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The MENA region includes countries in the Middle East and North Africa. MENA markets are classified as frontier markets and are rich in natural resources particularly oil and natural gas. As the price of oil has plunged some of these countries are better prepared to weather this downturn than others. The following chart shows that some of these countries have levels of reserves and low government debt:

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High-Reserves of MENA COuntries

While we group MENA as one region, there are wide differences between the individual countries. Oil is a significant driver of the economy only in six of the countries. The remaining five countries in MENA are oil importers. These countries should benefit from lower oil crisis.

MENA Oil Importers and Exporters

Source: MENA Markets: More Than Just About Oil,  Franklin Templeton Investments

Related ETFs:

  • SPDR S&P Emerging Middle East & Africa ETF (GAF)
  • Market Vectors Gulf States ETF (MES)

Disclosure: No Positions