Oxstones Investment Club™By Chris Hunter, International Living,
The big news this week is the bailout of Ireland by the European Union and the IMF.
Ireland’s problem is straightforward: the liabilities of its banks exceed the assets of the state. Put simply, the country is broke.
This is a big reversal from the years of the so-called “Celtic Tiger” economy. Back then Ireland was one of the fastest growing economies in the world. And the Irish were some of the world’s biggest spenders.
This reversal of fortunes is not just limited to the Irish.
Following the banking crisis that struck in 2007-2008, the world’s developed markets—the likes of the U.S., Europe and Japan—have been dogged by massive debts, slumpy economic growth and political tensions.
Gone are the days when far-off emerging markets were the “risky” ones. Now, it’s the world’s developed economies—and their banks—that pose the real risk.
In short, the emerging markets have been the leaders of the economic recovery. The developing markets have been the laggards.
It reminds me of the 1983 movie Trading Places. In it Eddie Murphy plays a panhandler who swaps lives with Dan Aykroyd, a wealthy commodities broker. This is the result of a bet between two brothers, Randolph and Mortimer Duke, who run Duke & Duke, a successful commodities brokerage.
The Duke brothers’ bet is a basic wager on the old “nature versus nurture” argument. One brother believes anyone can become a successful commodities broker. The other believes that success comes from good breeding.
Right now, what we’re seeing is some of the world’s biggest economies literally “trading places.” Former dead safe economic titans such as Japan are now vulnerable to economic collapse due to too much debt. While former backwaters such as Chile and New Zealand now have some of the strongest balance sheets in the world.
Most U.S. investors still haven’t woken up to this phenomenon. And those who have still get most of their emerging markets exposure through the so-called “BRIC” nations: Brazil, Russia, India and China.
The term was coined by Goldman Sachs analyst Jim O’Neil in 2001. O’Neil argued in a widely circulated paper that this bloc of four economies would eclipse the world’s richest economies by 2050.
The BRICs offer big rewards for investors who understand what makes these places tick. But they aren’t the only options on the table. There are three other emerging markets worth keeping an eye on.
Beyond BRICs – 3 Emerging Markets That Are Set to Shine
1) Turkey
Turkey has emerged from the financial crisis with its banking system intact. The Economist magazine forecasts that the Turkish economy will grow at about 4% next year (almost double the rate of growth forecast for the U.S.). Turkey has a young population, a market-friendly government, and it stands between two important economic zones—the Middle East and Europe. Turkish stocks are also trading at a relatively low P/E of 13.5…compared to a P/E of 15.6 for the S&P 500 in the U.S. (For a simple explanation on what the P/E ration means, read this.)
2) Indonesia
Indonesia has a well-diversified economy—with substantial agriculture, natural resources and manufacturing industries. It is also well situated between India and China—which should help its exports. Indonesia has a relatively stable market-friendly government under president Susilo Bambang Yudhoyono. And its economy is set to grow at over 5% next year. But on a P/E of 21.6, Indonesian stocks are looking a tad pricy right now.
3) Vietnam
With labor costs on the up in China, many factories are moving their operations to lower-cost Vietnam—a big boost to the Vietnamese economy. The ex-Communist country is also benefiting from a program of economic reforms, much like China did before its recent growth spurt. This has led many investors to look to Vietnam as a sort of “next China.”
Growth rates are also favorable, with GDP expected to expand by 7% next year. Vietnamese stocks trade on a P/E of 10. This makes them attractive to value-minded investors.
None of these emerging markets are easily accessible to American investors. If you are interested in finding out how to profit, I’ve been writing about this for members of my Alpha Hunter service—you can find details here.
Tags: Asia, BRIC, emerging equities, emerging markets, Indonesia, investments, Jim O'Neill, stocks, turkey, Vietnam