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Three Emerging Economies Bucking the Depression Downtrend

Economics / Emerging Markets Jul 26, 2010 - 01:18 PM GMT

By: Q1_Publishing

Economics Best Financial Markets Analysis ArticleDespite the downturn, they’re absolutely booming.

While most-watched stock markets are flat at best, their stock markets are running up.

Best of all, there are a lot of reasons these runs will continue in the short- and long-term.

It’s getting exciting in some parts of the world. And the emerging economies we’ll look at below are exceptionally bright futures, have stocks that are still rallying (they’re up 17%, 24%, and an impressive 33% so far this year), and a few ideas on how to play them.

Colombia: Digging its Way to the Top

Colombia has emerged as one of the fastest growing markets on earth.

The South American nation that’s still viewed by most as a haven for drug cartel kingpins, has been striding forward.

And its markets are leaping forward too. The Global X/InterBolsa FTSE Colombia 20 ETF (NYSE:GXG) is up 33% in 2010.

The combination of a consistent government, a focus on property rights, and vast natural resources has sparked an all-out race in Colombia.

In February 2009, we wrote to readers of our premium advisory service, the President’s List, that:

A few weeks ago Ventana Gold (TSX:VEN) announced it struck gold – a lot of gold.

Ventana is a small company with a market cap around $70 million. It’s small, still relatively unknown, and shares are climbing. It’s the perfect mix for a huge speculative rally.

It’s in Columbia which, despite a bad reputation for international drugs and corruption, is actually a very great place to be when it comes to natural resources.

Since then, Ventana Gold has gone from $1.05 at the time to a high of more than $12 per share, become the hottest gold story of 2009, and attracted a lot of foreign investment to propel Colombia’s economy.

In a very wise move, Colombia is not squandering this opportunity. It’s actually encouraging the investment and it has been one of the main initiatives of the current president-elect.

In Colombia, you want resources companies with big assets and big potential. They won’t all realize their potential, but those that do will surely make up for those that do not.

Indonesia: A Petro-Demo Boom

In early 2008 your editor had the opportunity to spend some time in Indonesia. From the back-country jungle to the traveler-friendly resorts, we spent as much time there as we could.

At the time we saw Indonesia in the midst of what we termed a “Petro-Demo” boom. Oil resources kept the cash flowing and young population demographics provided an able and willing workforce.

The first thing we realized in the first couple days there was everyone is young.

The demographics proved it too. The median age of Indonesia’s population is 27.9 years. This compares very favorably to the demographically-challenged Japan (median age of 44.6 years) and soon to be demographically-challenged United States (median age of 36.8 years).

The other key factor helping Indonesia’s economy is energy. Indonesia has vast amounts of energy reserves. It produces more than a million barrels per day.

But the Indonesian oil spigots won’t last forever. The country’s oil production has been steadily declining for nearly a decade.  The main oil reserves are declining too. But Indonesia has offset those declines by open up its doors to other energy industry subsectors, namely the Liquefied Natural Gas (LNG) industry boom. Indonesia is home to one of the largest LNG liquefaction farcicalities in the world and its currently being expanded.

The combination of these two factors played a big role in allowing Indonesia to avoid the entire 2008 global recession. It grew at an average 4% annual rate throughout.

It’s markets have responded too. The MarketVectors Indonesia ETF (NYSE:IDX) is up 24% this year.

If you’re looking for big gains in Indonesia though, the best bets are in the natural gas sectors which support the country’s large and growing LNG industry share.

Thailand: Ignoring the Headlines

Most of the news out of Thailand this year has been about the riots in the Bangkok streets.

Those headlines, as most do, hide what’s going on in the country as a whole. And what’s going on is an export-led boom.

Last Friday Thailand’s central bank revised its economic growth rate range forecast for 2010 from between 4.3% and 5.8% to 6.5% and 7.5%.

The main driver for this growth is that Thailand is doing what every other country is trying to do – start an export-led recovery. In June, the latest month data is available, exports rose 46%.

Of course, there are still the riots. They do have a negative impact. Thailand’s Prime Minister Abhisit Vejjajiva said the economy could have grown 8% to 9% if not for the political unrest.

As it stands, Thailand is growing fast. The iShares MSCI Thailand (NYSE:THD), up 17% for the year, is reflecting that growth.

And there’s upside too. If the economy grows at a 6% clip during tough times, imagine what it can do if the global economy rebounds and the political unrest subsides.

But there aren’t too many ways to get into Thai stocks. Foreigners aren’t allowed to own stocks directly, but there are a few funds and ETFs which open up a backdoor to most investors looking to ride the Thai economic express.

A Great Trend to Befriend

In the end, these are some great examples of how some economies are doing it right.

Whether though exploitation of natural resources, exports, or demographic tailwinds, these economies are showing strong signs of growth.

The growth doesn’t appear to be a short-term trend either. Remember, these countries didn’t get caught up in the global real estate bubble and don’t have the debt most others do.

The chart below, which tracks Colombian, Thai, and Indonesian ETFs relative to the S&P 500, shows the increasing divergence in these markets since the March 2009 bottom:

As you can see, the big divergence came as the market rally really started to fall apart last spring. The S&P 500 has gone nowhere while these countries’ market uptrends go on and on.

It’s a very exciting time in some places. So although the headlines may remain bleak in the most developed world, there are opportunities in some places.

As successful investors focused on the simplest investing rules to ensure we remain successful, we just have to know where to look. Given these countries’ economic growth, we’ll definitely continue to look there.

Good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2010 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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