Article by Investment U
I’ve only recently returned from a two-week tour of the Baltics. Of the seven countries I visited, the most interesting was Russia – and not just because of the grandeur of the Peterhof Palace or the glories of the Hermitage (Russia’ answer to the Louvre).
Russia is one of the world’s cheapest and most attractive emerging markets. It’s a pity not one investor in a hundred in the West has a penny invested there. Perhaps if they saw the big picture…
In 1980, developing countries accounted for just 30% of global economic growth. Today they generate more than half. Emerging nations cover 77% of the world’s land area and represent 85% of the world’s population. There are now 3.8 billion “middle class” people in the world today. And thanks to emerging market growth, that number is likely to double over the next 20 years.
As The Wall Street Journal reported recently:
“In the next 24 hours, approximately 180,000 people in developing countries will be moving from the countryside to cities such as Shanghai, Sao Paulo, Johannesburg. The same will happen tomorrow and every day thereafter for the next 30 years, the equivalent of creating one new New York City every two months. These men and women will need everything, electricity, water, food, healthcare, shelter, schools, computers and, of course, jobs.”
The investment implications here are stupendous. Yet I speak to many Americans who say their emerging market exposure is somewhere between meager and nonexistent. This is especially true of Russia, perhaps the least loved of the BRIC (Brazil, Russia, India and China) countries.
However, the world’s top emerging markets equity manager, Mark Mobius, is particularly high on Russia, even claiming in a recent interview that it’s his favorite market worldwide.
“Russia has been beaten down, has not really performed that well, the valuations are very good. The political picture is getting better. So I might pick Russia,” he said in the interview.
Why? Partly because Mobius, a dedicated value investor like his mentor John Templeton, likes to buy things cheap. Russia’s economy is dominated by the export of natural resources. Yet commodity prices have dropped precipitously this year – and so have Russian stocks. The Russian stock market currently sells for less than eight times earnings, even though the economy is likely to grow at 3.5% this year and Putin has plans to deregulate several industries and boost infrastructure development.
Mobius calls Russian equities “too cheap to ignore.” Clearly, I’m not suggesting anyone bet the farm on Russian equities. That wouldn’t be prudent. But if you’re looking to put some risk capital to work in an undervalued market with good growth prospects, it could be a very wise bet.
Good Investing,
Alexander Green
Article by Investment U
Tradervox.com (Dublin) – South pacific dollars rose to new records against the euro after Bank of China and Bank of England joined with European Central Bank to boost economic growth. The New Zealand dollar increased against most of its counterparts as the country’s budget deficit was announced by the Treasury department yesterday showing a narrower deficit than expected. The Australian currency advanced against most of its sixteen counterparts as Chinese monetary policy makers lowered interest rates for the second time. This also came as ECB lowered interest rate to 0.75 percent, the lowest since the single currency bloc was introduced. Further, the Bank of England decided to expand its quantitative easing program as it starts efforts to prevent the UK economy from going back into recession.
Tradervox.com (Dublin) – The Canadian dollar has strengthened to two-year high after the European Central Bank decided to cut interest rates and lowered deposit rate to zero. The loonie also increased against the US dollar as risk appetite gripped the market despite positive report from ADP Nonfarm payrolls showed an unexpected increase in the month of June. Other countries that changed their monetary policy this week include China and UK. Decisions by central banks to reduce interest rates or add stimulus come as a global coordinated effort to increase credit in the market as leaders struggle to keep global economy from recession.
Tradervox.com (Dublin) – The European Central Bank cut its benchmark interest rate to 0.75 percent from 1 percent as predicted while it dropped the deposit rate to zero percent. Moments after the announcement, the euro dropped against major currencies, retracting its gains last week. The sharp downward move put a lot of pressure on the Swiss National Bank as it tries to maintain it 1.20 cap against the euro. The pressure on the SNB is further compounded by the poor data from the euro zone which is indicative of a recession. The decision by ECB has put the EUR/CHF under huge pressure which led to a breach in yesterday’s trading moments after the announcement of the ADP Non-Farm Payrolls in US.
Tradervox.com (Dublin) – Japan released its trade data yesterday raising the yen to 0.6 percent from one-month high against the euro. The strong yen was also as a result of increased safe haven appetite in the market resulting from decline in Asian stocks. The yen also increased prior to Bank of Japan meeting on July 11-12.
Tradervox.com (Dublin) – Euro Regional Finance Ministers will meet today to discuss measures taken by the heads of government in last month’s EU meeting. The euro has reacted, touching its lowest in two years after declining for three days since the ECB decided to lower interest rates, forcing the SNB to consider drastic measures to counter. The ECB president Mario Draghi will address the European parliament today in Brussels where he is also expected to touch on the banks decision, Italy and Spain crisis, as well as measures taken to avert further deterioration in the region.
