Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Chile, The Emerging Market Investment for 2011

Stock-Markets / Emerging Markets Nov 17, 2010 - 05:39 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleMartin Hutchinson writes: When I review each of the world's emerging markets in order to decide which ones to buy in 2011, I start with two questions:

•Is the market cheap?
•And has it under-performed over the past year?


If the answer is "yes" for both those questions, that market is much more likely to get my vote.

But with every rule, there are also exceptions. As we will see.

The Art of Emerging Markets Investing
When you're choosing which emerging markets to invest in, it's important to keep this one precept in mind: With markets - even more so than for individual stocks - buying what's fashionable and overpriced (in other words, what's "hot") can be hazardous to your wealth.

The reason for this is fairly obvious. Most investors who buy emerging-market stocks don't have a good handle on the political and economic risks of the country concerned. When the market in question starts to rise, they get excited - or even worried that they might be missing out - and jump in to avoid getting left behind.

That's why these markets tend to overshoot on the upside.

Emotions, too, cause these markets to overshoot to the downside following a crash, making the best emerging-markets bargains very good, indeed.

The High-Rent District
The best four performers among the emerging markets since the beginning of 2010 have been Thailand, Peru, Chile and Indonesia, the sole member of the so-called "CIVETS" (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) economies, that we'll be looking at here.

Of these four emerging-market economies, Peru now carries the startlingly lofty Price/Earnings (P/E) ratio of 44.9, according to The Financial Times. Of these, Indonesia and Chile are also fully valued at more than 20 times earnings (a valuation that's much less forgivable for a market than for an individual stock). Only Thailand looks reasonably valued at about 14 times earnings.

However, I think market optimism this year has not taken full account of the political risk that Thailand faces. The current government ousted the country's legitimately elected government in 2008 - under some very dubious circumstances. And it remains very unpopular outside Bangkok.

Since an election is due in 2011, the chances of something going badly wrong must be pretty high. And even if the current government maneuvers itself to re-election, the risk of unrest is high.

The bottom line: In spite of the decent growth rate - and apparently reasonable valuation - I think Thailand is best left alone.

There are other markets that are simply overvalued, even though they have not advanced to become even more overvalued this year.

India and China: A Tale of Two Outlooks
India, for example, appears overvalued at 25-times earnings. The problem with India is that its government can't stop spending money. Even with economic growth of more than 8% this year, the budget deficit including both national and state budgets is around 10% of gross domestic product (GDP).

Add to that an inflation rate that's persistently in the double digits - and an ongoing balance-of-payments deficit - and you have a country that is severely in danger of experiencing a credit crunch.

At 25-times earnings, India's P/E ratio takes account of the opportunities available in that market, but not the risks. Avoid India for now.

China, on the other hand, looks to have a reasonable rating, with a market up only 11% this year and a P/E ratio of about 15.

Here there is a "two-tier" market.

There are companies - not all of them in the state-owned (SOE) sector - with astronomical P/E ratios: One such example is New Oriental Education & Tech Group Inc. (NYSE: EDU), which carries a P/E of roughly 50. At the other end of the spectrum are some value-oriented, medium-sized companies, including China Security and Surveillance Technology Inc. (NYSE: CSR), whose shares are trading at an alluring 5.68 times earnings.

Before we all rush out and buy the gamier Chinese small-caps, here's a word of caution.

Although these companies are being sponsored for U.S. listings by the likes of Goldman Sachs Group Inc. (NYSE: GS) and have been audited by major international auditors, there appears to be a huge amount of fraud in the Chinese small-cap sector, with fictitious earnings and even fictitious revenue being quite common.

Of course, given the valuations, there's an easy solution: You just buy a portfolio of these companies and keep your fingers crossed that not more than 25% to 30% of them are fraudulent. You should make enough on the winners to cover your losers.

Playing Russian (Stock Market) Roulette
Speaking of fraud, the best current value among the major emerging markets is Russia: It's up only 5.7% this year and is trading at only 9.3 times earnings. At that level, I have to admit that I can get tempted.

The contradictions inherent in the Russian economy are much less damaging when oil prices are high. With the price of the "black gold" at more than $80 per barrel right now - and with the current short-term price trend for oil headed up rather than down - Russia appears to be worth a bit of a flutter.

Bear in mind, though, that a flutter is just what this would be - a bet or wager. The country has no real property rights to speak of and any Russian company is subject to expropriation if the owner annoys Vladimir Vladimirovich Putin.

Still, low P/E ratios in a decently growing environment can't be ignored altogether. And the team of forecasters for The Economist has Russia growing 4.2% in 2010 and 4.0% in 2011 - not bad for a country whose population is static.

The Market Investors Can't Ignore
Our journey through the world's emerging markets has finally reached its destination - and a surprising one at that. That's because the one market that's poised to be the class of the field in the New Year is one that could easily be overlooked as belonging to the "junk" end of the market.

I'm talking about Chile.

Yes, Chile's stock market is trading at a somewhat lofty P/E of 23 times earnings. And, yes, that country's stock market is up 41% this year. However, the country is just emerging from recession and from a major earthquake and its new and excellent government has the policies that appear likely to speed growth. Sometimes - not often - high valuations are justified. I believe that Chile's market may be one such example.

And I also believe that Chile could be a leading performer in 2011 - just as it was in 2010.

Action to Take: Invest in Chile, with the expectation that it is well-positioned to be an emerging-markets top performer in the New Year.

The most-straightforward way to travel is the exchange-traded fund route, via the iShares MSCI Chile Investable Market Index Fund (NYSE: ECH).

In terms of individual stocks, I like Vina Concha y Toro SA (NYSE ADR: VCO), a producer of very-high-quality wine. It's currently trading at about 21 times earnings, with a dividend of nearly 4.0%. That's a somewhat premium valuation, but I like the dividend and Vina Concha is unquestionably a premium company.

[Editor's Note: If there's one thing top global investors understand, it's that you have to "follow the money" to reap the benefits of the best profit opportunities that are available at any one time. Money flows point out the next profit opportunities. Sometimes that means "following the money" from one sector to the next. Other times that means moving from one geographic market to another.

To make those moves successfully, investors need a compass or, better yet, a guide. And successful investors will tell you, one of the best guides out there is The Money Map Report.

This monthly advisory service - an affiliate of Money Morning - employs many of the same experts whose columns you read here each day. The difference is that The Money Map Report's straight investment analysis. Our writers use proprietary money-flow indicators to identify and isolate the most timely profit opportunities you'll find anywhere. For more information about The Money Map Report, please click here.]

Source : http://moneymorning.com/2010/11/17/...

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules