Investment Adventures in Emerging Markets

Readers’ Questions Answered

Thank you for the many positive and encouraging comments you have left during the first few weeks of my blog. Several readers also sent in questions on a range of topics. I apologize for not being able to answer all of your questions here, but have tried to touch on a couple of key topics.

Finding Opportunities

In which countries, regions or sectors are you finding the best values?
— Allen and Uday (separately)

We are finding opportunities in almost all emerging markets. Our ground-up research process locates opportunities in countries where the political or economic outlooks may not, at first appearance, look good. Nevertheless, we generally favor China and Brazil, but also have large positions in Russia, India and Turkey. In terms of sectors, we believe commodity stocks look good because we expect the global demand for commodities to continue its long-term growth. We also favor consumer stocks. With rising per-capita income and strong demand for consumer goods and services in many emerging markets, we believe the earnings growth outlook for these stocks is positive.

It appears that the financial market has changed, in that one needs to be more skeptical and cautious when investing than in the past. Alan Greenspan said that last year’s crash was unforeseen, and given the uncertainty of the markets and global financing, the big crash could happen again. What say you?
— Robert

Actually some analysts did see the crash coming in view of Greenspan’s loose monetary policies. The nature of markets is that there will always be booms and crashes since people tend to get either too optimistic or too pessimistic. The good news is that on average, bull markets have lasted longer than bear markets, and bull markets have gone up in percentage terms more than bear markets have gone down. In terms of other risks, I believe there is still a danger of the unregulated derivatives market.

Frontier Markets

Do you think Sri Lanka will turn around?

We believe that Sri Lanka is fundamentally a rich country and that the challenges revolve around how the true potential in tourism, agriculture and industry can be effectively met. We have been investing in Sri Lanka for many years. For us, the biggest challenge in the public market is liquidity. Trading turnover is rather low although we have found some investment bargains.

For a while, I thought you had ‘abandoned’ Malaysia. It’s good to see you in Malaysia again. So where does the Malaysian market go from here?

— Azaman, Malaysia

No, we have not abandoned Malaysia at all! In fact, we opened a research office in Kuala Lumpur, and I was recently in Johor visiting a company. We believe the long-term outlook for Malaysia remains positive and that the economy has been resilient, supported by stable macroeconomic fundamentals, a sound financial sector, flexible fiscal and monetary policies, continued demand for natural resources and sustained domestic demand.

Belgrade’s Stock Exchange suffered heavy losses in the 2008 meltdown, with the Belex index falling sharply. I am from Serbia, and so I was thrilled to find out that Franklin Templeton is investing in Serbia.

— Dejan, Serbia

Yes, we are interested in the Serbian market and we are now looking at opportunities there. Of course, when markets are down, it is the best time to start looking and Belgrade is definitely on our list. We have already invested in a company in Serbia and look forward to looking more closely at that market.

Some questions may have been edited for length and clarity.

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