Will Emerging Markets Continue to Outperform Developed Markets?

Posted by David Hunkar on 26 October 2009, 11:13 pm

Emerging markets have strongly outperformed developed markets this year. The equity market indices of countries like China, India, Brazil, etc. are up significantly over markets in Europe, Japan and North America. Over the last 10 years, the US and Japanese equity markets were essentially flat to down. Emerging market indices have grown many times in the same period.

An IMF study in published in the World Economic Outlook, September 2003 mentioned that the GDP per capita of a country is positively correlated to the change in the size of the working ppopulation. Based on this theory, developed countriesÂ are projected to have lower growth which in turn will lead to lower equity returns. One of the reasons for the low growth in developed countries is that the ratio of dependents will rise dramatically in the coming years due to declining population growth and increasing life expectancy, In the US, the era of strong participation in the workforce by the baby boomers is over. While in Europe population decline is an issue, in the U.S. the decline will not be big due problem to immigration and high fertility rates. Unlike the developed world, labor force in emerging countries are growing. By 2050 India, China and Brazil are projected to have the largest working population in the world.

In the U.S. as baby boomers retire they would liquidate their stocks, bonds and other assets leading to a fall in prices. In emerging markets the working population is expected to increase higher than the general population growth. With high savings rates, prudent investment policies,Â emerging market equities may easily beat developed market equities in the future also.

The U6 unemployment rate is over 16% in the USA. Millions of unemployed workers are unable to find well-paying jobs. Compared to this, emerging markets like India are attracting large foreign direct investmentsÂ as per a research report by Morgan Stanley, This is leading to more job opportunities in many sectors. In addition to manufacturing, many emerging countries are developing their knowledge-based sectors such as bio-technology, drug industry, mathematical analytical systems, etc. All these activities will help emerging markets beat developed markets over the next decade and beyond.

Related ETFs:

The iShares MSCI Emerging Markets Index Fund (EEM)

The iShares FTSE/Xinhua China 25 Index FundÂ (FXI)

The iShares Brazil Index FundÂ (EWZ)

Twelve European ADRs up more than 100% YTD

Posted by David Hunkar on 25 October 2009, 8:24 pm

The following Twelve European ADRs are up more than 100% Year-To-Date as of October 23, 2009:

Company: Mechsteel Steel (MTL)
Country: Russia
YTD Change: 412%

Company: Aixtron (AIXG)
Country: Germany
YTD Change: 354%

Company: Gentium (GENT)
Country: Italy
YTD Change: 315%

Company: Wimm-Bill-Dunn Foods (WBD)
Country: Russia
YTD Change: 192%

Company: Evotec (EVTC)
Country: Germany
YTD Change: 178%

Company: Vimpel Communications (VIP)
Country: Russia
YTD Change: 177%

Company: Eda (EDAP)
Country: France
YTD Change: 151%

Company: Acergy (ACGY)
Country: Norway
YTD Change: 142%

Company: ASML International (ASML)
Country: The Netherlands
YTD Change: 139%

Company: Flamel Technologies (FLML)
Country: France
YTD Change: 132%

Company: Alacatel-Lucent (ALU)
Country: France
YTD Change: 112%

Company: National bank of Greece (NBG)
Country:Greece
YTD Change: 105%

Are Asset Management Company Stocks a Good Buy Now?

Posted by David Hunkar on 25 October 2009, 2:03 pm

Stock markets worldwide have rallied strongly since the lows reached in March this year. In the U.S. the S&P 500 is up about 22% year-to-date. Despite many not trusting this rally, the market continues to defy gravity. As the market continues to go up or hold ground at current levels, some are convinced that the equity market is a leading indicator.

Retails investors who disappeared from the markets from the brutal market crash of the credit crisis are slowly trickling back into the markets. Investors are putting money back work via 401K retirement plans, their individual investment accounts, etc. As a result, asset management firms are seeing rise in the flow of assets.

Asset management companies make significant amount of profits from management fees. The average mutual fund fees in the US was over 1.5%.

“In 1940 there were only 68 funds and about 300,000 shareholder accounts. By 1990 there were 3,000 funds and 62 million accounts with a trillion dollars in assets. In 2008, 8,000 funds had 265 million shareholder accounts and almost $10 trillion in assets, down from $12 trillion in 2007. According to the Investment Company Institute, the trade association for the mutual fund industry, 45 percent of all American households owned mutual funds in 2008, up from 41 percent in 1998.”

As assets under management rise, fund companies stand to benefit.Despite the explosive growth the ETF industry, mutual funds still manage the largest amount of funds invested by retail investors.

One way to identify investment opportunities to analyze the top mutual fund companies that manage the most assets. The following table shows the Top 10 Mutual Fund Companies by Assets:

Some of the asset managers listed above are not publicly listed. The top mutual fund companies that are listed int he markets include: JP Morgan & Chase Co (JPM), BlackRock Funds (BLK), Federated Investors (FII), Bank of New York Mellon/Dreyfus Co(BK) and Goldman Sachs & Co (GS). Other large US asset management companies include Alliance Bernstein(AB), Eaton Vance(EV), Franklin Resources inc(BEN), Legg Mason(LM) and T. Rowe Price Group Inc(TROW).