Saturday, June 14, 2014

The "All Else" Part 9, Emerging Markets

What if I told you there were places in the world where, combined, 85% of the population lives and where those 6 billion folks have yet to build the infrastructure or, therefore, to enjoy the modernity to be found where the remaining 15% live? And what if I asked you where, therefore, you'd expect the greatest economic growth---the greatest advancement of the human condition---to occur in the years to come?

I read an article the other day about Google's desire to launch 180 satellites with the goal of providing internet access to the two-thirds of the world's population who've yet to log on. Do you think such an accomplishment would help speed up the progress in those emerging countries? I do.

The average Indian worker is 26 years of age. The average American worker is 37. Who do you suppose has more energy? Who do you suppose has more to gain from deploying his/her energy? Whose condition do you suppose has more room for improvement in the years ahead?

Yes, there's much to be said about the investment opportunities that exist in the emerging markets. There's also much to be said about the risk. We know that the chief reason emerging market development lags the developed markets is politics. And we know that the politically powerful are never too eager to relinquish their hold. But we are seeing some change for the better: India's recent election of a supposedly market-friendly party and China's "rebalancing" to a consumer-driven economy are two encouraging signs that the powers that be are coming to realize that the future will not be kind to the oppressor.

I have devoted much time here on the blog to the prospects for emerging markets. Last year I explained how the Fed's QE program did a real number on emerging currencies and, thus, their stock markets. And how, in reaction, India's government instituted some very ill-conceived capital controls. These sorts of things, along with various other forms of miscalculation, and conflict, will no doubt---to some extent---continue to color the emerging market landscape for years to come. Nonetheless, I'll be very surprised if we're not looking back years hence and marveling at the advancement of much of the emerging world --- and how well that portion of our portfolios devoted there has performed.

If I've yet to convince you that---roller coaster-like volatility notwithstanding---emerging market stocks should occupy a modest position in your portfolio, consider where some of the world's smartest businesses are investing their resources.

Here are the top 10 constituents in the MSCI World With EM Exposure Index. An index comprised of the world's top companies with the highest portion of their revenues derived from emerging markets. 

Procter and Gamble
Phillip Morris
Banco Santander
HSBC Holdings
British American Tobacco
BHT Billiton

Yeah, I'm thinking we'd be wise to invest where Apple invests...



1 comment:

  1. Your Comments
    Hi Marty,
    So, are you rebalancing a bit acc. to the above article,
    or do I have enough exposure already?

    ("Code" before "Send"? Sometimes - at first - I missed the code...)