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The Resource Wars Are Heating Up

Andrew Gordon — Tue, 28 Jul 2009 23:53:19 +0000

You can’t go back. So don’t assume that as the U.S. and the West recovers, they’ll attract foreign capital just like they did before the recession. It’s a far different landscape now. The easy-credit bubbles are gone. And they’ve left us with a hellacious debt burden.

The U.S. debt is expected to zoom to $16.2 trillion by 2012, almost equal to its projected GDP. Italy’s debt is expected to reach 120% next year. France’s debt will approach 90% next year (if President Nicolas Sarkozy goes ahead with his fiscal blitz). All told, by next year, Europe’s debt should rise to about 80 percent of GDP. And then there’s Japan. Its public debt is headed toward unfathomable depths. It should reach 240% of GDP by 2014.

After buying $600 billion in U.S. assets last year, China, for example, is having second thoughts. It won’t come close to matching that number this year. And China has made it very clear that not even relatively cheap assets available in the U.S. will lure Chinese investment money.

In an interview published in China’s state-controlled media, the chairman of China Development Bank said Chinese foreign investment won’t target Western economies. “Everyone is saying we should go to the western markets to scoop up [underpriced assets]. I think we should not go to America’s Wall Street.

So where will China go? The bank chairman says China “should look more to places with natural and energy resources.” That would be Africa, Russia, Australia, plus other places.

The resource war is gaining steam. When the global economy recovers, it’s a sure bet that commodity prices will start getting expensive again. China has concluded that it’s a better deal to buy the mines now rather than the commodities later.

Resource countries are going to be the main beneficiaries. South Africa is known for its metals and mining and gold industry. The ETF covering it, iShares MSCI South Africa Index (EZA), is up 27.6% year-to-date.

Source: The Resource Wars Are Heating Up

Looking For the Next Global Profit Play? Take a Look at These Emerging Market ETFs

Mike Caggeso — Wed, 20 May 2009 14:40:05 +0000

Like most investors, Harvard University’s billion-dollar endowment fund took a beating during the global financial crisis. Many investors cashed out, opting for the safety of the sidelines. But Harvard called a new play. During the first quarter, Harvard engineered a dramatic shift in its endowment-fund investment strategy – boosting its stakes in some of the most prominent emerging market exchange traded funds (ETFs).

Indeed, its largest first-quarter investments included:

$50.9 million in Vanguard Emerging Markets ETF (NYSE: VWO)
$1.5 million more iShares MSCI Brazil Index ETF (NYSE: EWZ)
$1.1 million more into in iShares FTSE/Xinhua China 25 Index ETF (NYSE: FXI)
$877,700 into Van Eck’s Market Vector Russia ETF Trust (NYSE: RSX)
$817,300 into iShares MSCI Mexico Index Index (NYSE: EWW)
$390,400 more into iShares MSCI South Africa Index (NYSE: EZA)

Harvard’s fund also took a first-time, $45.5 million position in iShares MSCI South Korea Index ETF (NYSE: EWY), as well as two foreign titans – a $16.7 million stake in China Mobile Ltd. (NYSE ADR: CHL) and a $12.6 million stake in Israel’s Teva Pharmaceuticals Industries Ltd. (NASDAQ ADR: TEVA).

Obviously, an institution such as Harvard does its homework before making such an aggressive play call, and committing so much money to the emerging economies of the world – global regions whose stock markets took even bigger hits than the United States’ Standard & Poor’s 500 Index.

Since the market bottomed out at 676.53 on March 9, the S&P 500 has gained an impressive 34.2%.

During that same span, however, the ETFs that received Harvard endowment dollars have handily trounced the performance of that U.S. bellwether index. Just as an example: Vanguard Emerging Markets ETF is up 58.1% and iShares FTSE/Xinhua China 25 Index ETF has gained 51.2%.

And the overall MSCI Emerging Markets Index ETF (NYSE: EEM) – which measures a 26-country-tracking index of the same name – is up 55.2% since the bottom.

Emerging Market Professors

One of the market professors Harvard is listening to is Robert G. Doll Jr., vice chairman and chief investment officer for private equity fund BlackRock Inc. (NYSE: BLK). Doll said earlier this week that the global economy has likely seen the worst of the worldwide financial crisis, and that developing economies are already emerging from recession.

“If, in fact, we have seen a bottom in markets and economies are going to recover, the emerging parts of the world will recover the most and the fastest,” Doll told Bloomberg News. “After all, their recessions were largely unwanted inventory build-up and not the credit bust in the Western world.”

Earlier this month, Doll said he believed the S&P 500 would fall from its current levels (which it had), and then rally to end the year at around 1,000 – for a gain of about 11%.

“Emerging markets, if they are going to do better than that, are going to do closer to 20%,” Doll said. “There are some that already have. Some have done better than that.”

A couple weeks before Doll’s vote of confidence, Mark Mobius, famed investor and head of Templeton Asset Management Ltd., said that emerging-market stocks are building a base to enter a bull market at the end of the year, Bloomberg reported.

“We are at the base-building period for the next bull market,” Mobius told Bloomberg while attending a conference in Indonesia. “What I see happening is perhaps this continuing till the end of the year, and then a breakout.”

Many of these emerging and developing economies are on the cusp of breaking out, but are being held back by the drought of others. The ultimate catalysts that set them loose will be falling interest rates and easing inflation, Mobius said.

In the first week of May, about $4 billion was pumped into emerging-market equity funds. It was the largest weekly inflow since December and the eighth-largest on record, MarketWatch reported. Most of that went into ETFs, and long-term positions at that.

Not coincidentally, the specific countries seeing the largest inflows are represented in Harvard’s portfolio. Brazil posted its second-largest weekly inflow on record. China, India and Russia also saw huge gains, MarketWatch reported.

Those four markets – Brazil, Russia, India and China – comprise the so-called “BRIC” economies of the world.

Emerging Market ETF Plays

How to capitalize on emerging markets reemergence from recession depends on your risk tolerance. And risk levels can vary by country and investment sector.

Carl Delfeld, head of global investment advisory firm Chartwell Partners, noted that while the U.S. financial sector is the chief culprit of the global financial crisis, some healthy-capital foreign banks are currently very nicely positioned because they didn’t get involved in the bad U.S. debt, and because they have the fastest-growing growing base of consumers in the fastest-growing markets.

And a good way to play this trend could be the soon-to-be available Global Shares Dow Jones Emerging Markets Financial Titans ETF, Delfeld writes in the May 25 issue of Forbes magazine. Of the fund’s top-10 holdings, four are China-based, three Brazil and two India.

More speculative investors might be interested in another new ETF, the WisdomTree Dreyfus Emerging Currency Fund (NYSE: CEW), a basket of 11 equally weighted emerging market currencies that are rebalanced every quarter.

The currencies in the fund are the Brazilian real, Mexican peso, Chilean peso, Israel shekel, Turkish lira, Polish zloty, Chinese yuan, South Korean won, Taiwan dollar, Indian rupee and the South African rand.

For more general plays on specific countries, Harvard’s list of new investments could be a good starting point.

Money Morning Contributing EditorHoracio Marquez recommended iShares MSCI Brazil Index (EWZ) in his popular “Buy, Sell or Hold” column last October. It’s also one of the five emerging market ETFs that Money Morning’s Martin Hutchinson recommended earlier this year. Others included iShares MSCI Chile Investable Index (ECH), iShares MSCI Taiwan Index (EWT) and iShares MSCI Singapore Index (EWS).

Source: Looking For the Next Global Profit Play? Take a Look at These Emerging Market ETFs

Taipan Emerging Market Index Gains 44.2%

Irwin Greenstein — Fri, 06 Jun 2008 20:42:17 +0000

The Taipan Emerging Market Index is up today 44.2%, a huge gain from last week when it was virtually flat with an uptick of .52%. By comparison, this week saw the S&P 500 up 0.9% while the Dow Jones Industrial Average dropped 5.3% as of this writing.

Key
ALL ORDINARIES IDX (ASX: ^AORD) Australia
BSE SENSEX (Bombay: ^BSESN) India
IBOVESPA SAO PAULO (^BVSP) Brazil
EGYPT CMA GENL INDX (Cairo: ^CCSI) Egypt
HANG SENG INDEX (HKSE: ^HSI) Hong Kong
COMPOSITE INDEX (Jakarta: ^JKSE) Jakarta
COMPOSITE INDEX (Kuala Lumpur: ^KLSE) Kuala Lumpar
KOSPI Composite Index (KSE: ^KS11) South Korea
MERVAL BUENOS AIRES (Buenos Aires: ^MERV) Argentina
IPC (Mexico: ^MXX) Mexico
NZX 50 INDEX GROSS (NZSE: ^NZ50) New Zealand
IGBM (Madrid: ^SMSI) Spain
TEL-AV TASE-100 IND (^TA100) Israel
TSEC weighted index (Taiwan: ^TWII) Taiwan
SSE Composite Index (Shanghai: 000001.SS) Shanghai
iShares MSCI South Africa Index (EZA) South Africa
RTSI INDEX (RUS: RTS.RS) Russia
ISHARES MSCI THAILAN (NYSEArca: THD) Thailand
iShares MSCI Turkey Invest Mkt Index (TUR) Turkey

Our index shows one thing clearly. When it comes to Big Media’s news rant about wild inflation in emerging markets, you’re not getting the full story. Despite double-digit inflation in resource-rich Russia, Kazakhstan and Saudi Arabia, there is still money to be made from the oil, natural gas and other commodities that these countries export to the rest of the world.

The news gap between what you read in Big Media and what our index proves is that inflation impacts the man on the street. Commodities, meanwhile, contribute to the inflation through rising prices that are making investors rich.

With commodities, it’s very possible that the gains you realize far outstrip the corrosive effects of inflation.

For example, our big winner today is Hong Kong’s Hang Seng Index (HKSE: ^HSI). It was largely driven by gains in coal, oil and shipping. ^HSI is a perfect illustration of what I just mentioned about the disconnect between inflation and market gains in economies fueled by the commodity boom.

If you look at the big winners in the ^HSI, notably oil and shipping, they are the culprits blamed for global inflation. And if you had money in ^HSI, your gains could have been much higher than the rate of inflation — putting you ahead.

Sure, you’re feeling the pain of spiking prices in gas, groceries and utilities. But investors are still making money in emerging markets. Are you?

Have a great weekend.

Irwin Greenstein

Source: Taipan Emerging Market Index Gains 44.2%

The Dollar Is Rising… In South Africa, That Is

Sara Nunnally — Thu, 22 May 2008 19:36:59 +0000

With aging power plants and failing infrastructure, South Africa needs an injection of investment cash into its power sector. And while its economy technically maintains a budget surplus, it’s constantly battling things like unemployment and poverty.

The chart you’re looking at compares the South African rand’s performance (versus the U.S. dollar) and the iShares MSCI South Africa ETF (EZA). This is what’s called an inverse correlation. When the rand becomes inflated, South African companies don’t perform well.

The opposite is also true: When the rand gains in strength versus the U.S. dollar, South African companies perform better.

Over the past couple months we’ve seen exactly that. The interesting thing is South Africa is in the midst of a power crisis. In fact, many of its mining companies are scared they won’t have enough power to produce things like gold and platinum.

In short, a commodities bull run, with gold and platinum prices soaring, won’t mean much to the resource-rich country if it doesn’t have the power to produce them — or if the workers wage strikes against low wages and immigrant workers.

My take? Without some positive news on the situation soon, expect the EZA to drop back, and the rand to inflate a bit more. Here’s some numbers: EZA could drop to $110 and the rand versus the U.S. dollar could fall to a ratio of 7:1.

S.R. Nunnally

Editor, Taipan Trader

P.S. The US dollar has been rising in India and Pakistan, too… So sharply that one might expect a bit of a backlash here. Check out the chart, and see for yourself.

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Source: The Dollar IS Rising… In South Africa, That Is