Ten Reasons to Invest in Emerging Markets

Emerging markets have been growing at an incredible pace in the past few years. Some of these markets have performed well this year also compared to the US. For example, the year-to-date returns of Brazil, India and Mexico are 4.3%, 17.1 % and 5.3% respectively. Despite the strong growth in recent years, emerging markets continue to exhibit potential for further growth. Hence investors might want to diversify their portfolios with some exposure to emerging market equities.

Some of the reasons to invest in emerging markets are discussed below:

1. The market cap of the MSCI Emerging Market Index has grown 200% in the last 5 years beating all other broad indices as shown in the graphic below:

Source: Lazard via Trustnet

Currently emerging markets trade at 11 times forward earnings compared to 12.5 times for the MSCI World.

2. Almost half of the global GDP growth comes from developing countries.

3. According to The World Bank estimates, developing countries are projected to grow by 6.1% in 2010, 5.9% in 2011, and 6.1% in 2012, while the corresponding figures for the developed countries are just 2.3%, 2.4% and 2.6%.

4. Developed countries are facing a much stronger headwind compared to emerging countries.Recessions due to a combination of credit crunch, a housing bust, and an equity bust tend to be deeper and longer than usual. OECD data shows that just 4 out of 122 recessions in the post-war period have had all these three factors.Hence emerging countries are in better shape than developed economies since they suffered less from the effects of the credit crisis.

5. Public debt in the advanced G-20 economies is expected to reach 118% of GDP by 2014 whereas developing countries’ debt is projected to decline further.

6. Consumption spending by consumers in developed countries will be weak despite the balance-sheet de-leveraging by households due to the jobless recovery and collpased housing prices.

7. Among emerging countries, some countries such as Brazil, China, India are showing an increase in measures of innovation such as number of patents granted and scientific and technical journals published.

8. Trade among developing countries is increasing significantly. Trade among the developing countries now accounts for about 39% of their total trade. For example, bilateral trade between India and China has been increasing since 2008 and has exceeded the bilateral trade between India and the United States. Furthermore, trade between India and China remained constant during the credit crisis, while trade between India and the United States declined as the chart shows below:


9. As developing countries move up the value chain, they are less dependent on primary commodity exports than before.For example the share of commodity exports has fallen from 50% in 1990s to 40% during 2005-2007.

10. Factors such as infrastructure spending, urbanization, healthcare investments, etc. will lead to higher economic growth in emerging markets relative to developed markets.

Source: The Day After Tomorrow – A Handbook on the Future of Economic Policy in the Developing World by Otaviano Canuto and Marcelo Giugale, The World Bank

Related ETFs:
iShares MSCI Emerging Markets Index Fund (EEM)
SPDR S&P Emerging Markets ETF (GMM)
Vanguard Emerging Markets ETF (VWO)

Many other emerging market ETFs based on a variety of strategies are available for investors.This ETF list can be accessed at the Seeking Alpha site here.

New ADR: SouFun Holdings Limited

SouFun Holdings Limited started trading on the NYSE on September 22nd with the ticker symbol SFUN. SouFun operates a leading real-estate website in China. The company “provides marketing, listing and other value-added services and products for China’s fast-growing real estate and home furnishing and improvement sectors.”

The initial ADR price was set at $42.50 and 1 ADR equals 4 Class A ordinary shares.The total ADR offering value was about $143 M for about 3.3 million shares. On the day of listing the stock jumped 73% confirming the continuing investor appetite for all stocks related to China.

Last October another China real estate information services provided named China Real Estate Information (CRIC) was listed on the NASDAQ market.From a peak of over $16 the ADR reached as low as $8 before recovering to $11.10 now.

The Shanghai Composite Index is down by double digits this year.Speculation is rampant in the Chinese housing market despite the central government’s best efforts to crack down on speculators. Hence foreign investors need to be cautious before jumping into the China bandwagon especially IPOs stocks related to the real estate market.

The 10 Most Profitable Swiss Companies

The 10 most profitable publicly-listed Swiss companies that appear in the Forbes Global 2000 list for 2010 are listed below:

[TABLE=580]

Nestle (OTC: NSRGY) is the world’s largest consumer goods company that owns about 6,000 brands. ABB Ltd (ABB) offer power and automation technologies to industrial customers and the company has operations in about 100 countries.

Related ETF:
iShares MSCI Switzerland Index (EWL)

21 Foreign Stocks Yielding More Than 5% Dividends

With the third quarter over, I wanted to identify some foreign large cap ADRs that paid dividends of over 5%. So I ran the stock screener with the following criteria:

1. Stocks must trade on the NYSE
2. Market cap. must be >= $5B
3. Must have dividend yields of 5% or more

The search resulted in 21 ADR stocks that are listed below:

[TABLE=561]

The only financials in this list are Banco Santander(SAN) of Spain and Mizuho Financial Group (MFG) of Japan. Santander’s recent acquisitions should help the bank increase its earnings in the long run. This year the banking giant has acquired a 24.9% stake in Grupo Financiero Santander(Mexico), bought the German retail network of Sweden’s Skandinaviska Enskilda Banken, bought 318 U.K. branches from Royal Bank of Scotland and picked up Allied Irish Banks’s (AIB) 70% stake in Poland’s Bank Zachodni WBK.

The three electric utilities Companhia Energetica Minas Gerais (CIG), Companhia Siderurgica Nacional(SID) and CPFL Energia S.A.(CPL) can offer exposure to the utility sector of the hot emerging market of Brazil.Ten of the ADRs noted above are in the telecom sector. Spanish telcom company Telefonica (TEF) has a strong presence in Latin America. Mobile TeleSystems OJSC (MTS) is a telecom services provider in Russia, Ukraine, Uzbekistan, Turkmenistan and Armenia with a subscriber base of about 98 million at the end of last year.