Continuing on my recent themes of investing in emerging Markets, it may be worth looking at the Deutsche Bank x-trackers these will give you exposure to numerous emerging markets including India, Vietnam, Korea, Taiwan, Brazil and Russia.
You can find details at www.dbxtrackers.com
Best Wishes
Alan
A few Years ago Morgan Stanley came up with the original idea that four big countries – Brazil, Russia, India and China – would together soon become so important in the world economy that they could be viewed as a single group, much as we think of Europe or Latin America.
They dubbed the group BRIC, after the first letters of their names, saying that their combined economies, from being just 15 per cent the size of the world’s six most advanced countries’ – including the US and Japan -- would grow to become even larger than them in combination in fewer than 40 years.
There has been a lot of focus on India and China and I have written about these countries in past articles Broken China ?? & Investing in India The challenge with both these countries is that they do seem to still be linked to the fortunes of Wall Street and have suffered along with the US Markets
Brazil and Russia, by contrast, are among the handful of countries best situated to supply those increasingly valuable natural resources and so are fairing a lot better and seem less exposed to the US story and more exposed to the Commodities and Energy story that is doing well in the face of the US recession.
Russia is a huge exporter of oil and natural gas, nickel and platinum group metals. Brazil is the world’s biggest supplier of internationally-traded agricultural products such as sugar, soybeans, coffee, corn, orange juice, beef and poultry.
Both still have enormous resources that can be developed to meet Asia’s growing demands.
No shortages of energy, food or water
Last year Brazil’s main stockmarket index rose 71 per cent in US dollar terms, or even faster than India’s, suggesting that international investors are awakening to the potential of the South American giant.
Much of that interest was focused on Brazil’s two biggest stocks – Vale (NYSE:RIO) and Petrobras (NYSE:PZE). Vale is the world’s biggest exporter of iron ore; Petrobras has just made the world’s second-largest oil/gas discovery in 20 years, deep beneath Atlantic waters.
But it’s renewable resources, rather than minerals, that are increasingly attracting investor interest.
The well-known British investor, Jim Slater, says Brazil is “insulated against the world’s main shortages – fresh water, agricultural commodities and energy.”
It contains nearly a fifth of the world’s fresh water, available to expand agricultural production and carbon-free electricity generation. Hydro-power already provides 80 per cent of Brazil’s electricity needs, and two big new dams are being built on the Amazon at a cost of $10 billion.
Because it can produce alcohol fuel from sugarcane, without subsidies, for prices competitive with petrol, Brazil has been dubbed “the Saudi-Arabia of ethanol.”
David Fuller, the London-based analyst, says: “No country is better positioned to benefit from the agricultural boom than Brazil, with its large and fertile land mass, absence of any desertification, and ample supply of fresh water.”
Other commentators point to the nation’s economic growth rate (around 5 per cent a year), a foreign trade surplus (running at about $40 billion a year), large foreign reserves, a strong currency and a buoyant stock market.
Last year Brazil attracted FDI (foreign direct investment in factories and business operations) of $37 billion, or twice as much as India. It was the world’s third biggest raiser of investment capital via equity issues after the US and China. And its international bonds are expected to be granted investment-grade status within two years.
Brazil has a flourishing middle class of 20 million – depending how you define “middle class,” five times larger than India’s – as well as political stability, a favourable environment for foreign investment, and strong job creation (5 million new jobs since 2000).
Years of favourable international environment, combined with good policies such as more disciplined public finances and trade liberalization, have delivered low inflation and falling interest rates. One result is the emergence from poverty of a new lower-middle class, so the nation’s notorious income inequality has been declining.
Sensitive to foreign capital flows
What are the negatives?
The public sector is bloated and corrupt, packed with time-servers with jobs for life and fat pensions to look forward to. Taxes to pay for it gobble up more than a third of national output – a proportion much higher than in other emerging markets and out of proportion to the low quality of services provided.
As is commonplace in countries where planning, building and operating infrastructure is almost entirely in the hands of bureaucrats, Brazil has some serious infrastructural problems, including power-supply shortages. The regulatory environment is not sufficiently clear to attract private investment.
Labour laws are highly restrictive, with welfare and other compulsory contributions adding 60 to 100 per cent to employers’ payrolls.
The stockmarket is very sensitive to flows of foreign capital, therefore exposed to adverse money shifts that may be triggered by developments unconnected with conditions in Brazil itself, such as the US sub-prime crisis.
Finally, remember that although Goldman Sachs’ BRIC study projected good per capita growth rates for the Brazilian economy over the coming decades, it suggested the three other nations in the group would grow even faster.
If you are interested in adding Brazil to your international portfolio to provide balance, the best way to do so is probably via one of the exchange traded funds listed in London or New York. There is an iShares MSCI Brazil Fund in London which I would favour as it is priced in Sterling and not Dollars or there is the Brazil Fund (BZF) that trades in new York if you are looking for a dollar denominated fund.
Best wishes
Alan
Yesterday I looked at the story behind Russia and outlined some of the positives and negatives for investing there.From Russia with Love ? Today I am going to look at some of the ways you can invest in Russia if you feel positive about the potential in that emerging market.
Since we discussed the story behind Natural Gas then the most obvious play is Gazprom (LSE : OGZD). Its former chairman is now the Russian president ..........so you do the math re the environment for Gazprom going forward !! There have also been recent increases in Domestic gas prices in Russia which are going to be of benefit. I also mentioned the deal that Vladimir Putin had struck with companies in the Caspian Sea area and Gazprom will also be a beneficiary of that.
The increased need to get more out of the worlds agricultural supplies is having a big impact on fertiliser companies-just look at Mosaic (MOS) over the last few days. Russia's answer to Mosaic is Uralkali (LSE: URKA) and it should do well over demand from China for fertilisers in the medium term.
The need to improve the railways will also impact positively on Evraz Group (LSE: EVR).
If you are uncomfortable picking individual stocks then Lyxor have a Russia ETF (LRUS) which will give broad exposure to the Russian Titans 10 index.
In my next post I will look at Brazil and the opportunities that may be there for investors looking to invest in South America and its economies.
Best Wishes
Alan
Vladimir Putin has taken leave of office and is being "replaced" by Dmitry Medvedev.Despite what some may think in the West ,Putin is extremely popular in Russia.During his premiership Russia has had a remarkable economic transformation . Since the early nineties the Russian Economy has been growing at a remarkable rate of 8% per annum.
Most of this growth has been down to the massive reserves of Natural resources that it can draw on particularly Oil, Gas and Precious Metals.The demand for these Natural resources from the emerging countries such as China and India has fuelled a boom that has seen a thriving middle class developing in Russia.
Like all middle classes these Russians are splashing out on cars, holidays and electronic goods. There is no doubt that some people may have concerns about investing in Russia, we can all remember when the Russian government was seizing power of Yukos and we were hearing stories of the "Red Mafia" running wild.However those who have invested in Russia in the past few years have seen some serious returns.
Russia is amongst the cheapest of the emerging market economies, it has huge resources of natural commodities that the world is crying out for and importantly at the moment has little or no exposure to the credit crisis that is impacting on a number of the rest of the worlds major economies. Some people may not like Vladimir Putin but you cannot fault what he has achieved in the economy.
The Case for Investing
The case for investing in Russia is based mainly on energy.It has vast oil reserves in its Western States and a third of the Worlds gas reserves sit in Siberia, this makes Russia by far the worlds biggest gas exporter and producer. On top of this its neighbours have an increasing reliance on buying from Russia. Over 20% of the EU's natural gas comes from Russia.
The current record prices for oil means that the Kremlin is generating a fortune in taxes that it has levied on the oil producers. It is estimated that Russia takes in over 80% of every dollar that the price of oil increases at the current levels.Learning from the past where they squandered the wealth that these Natural Resources generated Russia has created its own Sovereign Wealth Fund which is known as the Stabilisation Fund.The current estimates are that this fund has something in the region of $150bn.Russia also must be the envy of many economists and politicians in the west in that it is estimated to have a budget surplus of 5-6% of GDP.
Downside Risks
As with all things where there is the potential of high reward there is attached risk, there is no doubt that there are risks associated with investing in Russia.State ownership has always meant that investment levels tend to lag behind what you would expect from private ownership.This is certainly the case in Russia, the limited investment in the Siberian Oil fields has seen an impact over the years in the levels of production growth.In the late 90's estimates were that production growth was around 10% per annum, the estimates now are that this has dropped to around 1%.
The picture with gas however is more rosy the Kremlin has been very active encouraging ( some would say bullying) big Gas companies such as BP into investing in infrastructure in Central Asia.Putin has also got agreement from countries in the Caspian Region which allow Russia to get access to the reserves in the area for a fraction of what they are worth to the West so when selling these on to countries in the EU Russia is guaranteed a tidy mark-up.
One of the other potential downsides for to consider for the future is infrastructure, since the collapse of the Soviet Union there has been a major decline in the maintenance of Russia infrastructure, transport networks are very underdeveloped and this will have an impact on its competitiveness if plans are not soon put in place to invest in the road and rail network a
s well as the oil and gas pipelines.
The Russian government has recognised this and plans to throw around $1trn at the problem. The Kremlin has committed around $200bn with the rest coming from the private sector.
What to Buy ?
In my next post I will look at some of the ways and companies that could do well on the back of the continued boom in Russia .
Best Wishes
Alan
