Investment Adventures in Emerging Markets

Readers’ Questions Answered II

Hi, I thought your blog was a good opportunity for me to know how the experts think about South Korea’s economy. First, what is your opinion of the Korean shipbuilding industry – will it continue its downfall due to low demand or will it recover in 2010? Second, do you think South Korea’s exit strategy for their expansionary fiscal policy, if implemented, will greatly impact the economy?
– Joshua, South Korea

1.  We think that the shipbuilding industry in South Korea has a high level of expertise and technology and they thus will be able to compete in the global market for the time being. However, the Chinese are rapidly catching up in the technology race; by combining their larger market, cheaper and more plentiful labor and improved technology, they may be able to take market share from Korean shipbuilders. I believe the future for Korean shipbuilders will be in very specialized, high-tech ships and by establishing shipbuilding plants in China.

2.  I don’t expect the South Korean government to withdraw all fiscal measures and implement monetary tightening policies simultaneously. Rather, when they do exit from expansionary monetary policy, they would do it gradually and at a time when the government believes that economic recovery might be sustainable. I don’t believe the government would want to reverse all of its previous efforts.

Do you find that companies in Dubai and other parts of the UAE have the same transparency, seasoned management, honesty and ethics as Western Europe and America?
– Marshal, United States

A number of companies in Dubai do have the same transparency, seasoned management, honesty and ethics as in markets such as Western Europe and the U.S. Of course, not every company has such characteristics, but we are able to find a number of companies that do. We must remember that every country, including developed countries, have their own share of companies with poor management and corporate governance standards, lack of transparency and other negative characteristics. It takes diligent research and experience to determine if a company has good corporate governance, and that is a challenge that applies across the globe.

Regarding India, I had two questions. First, India had two good quarters of GDP growth, actually better than China. Do you think that this trend is likely to continue? Second, do you think that India’s model, which I would qualify as “growth out of chaos”, proposes a way for growth that is different to China and as such is more transferable to other developing countries?
– Luc, France

1.  There is good reason to believe that India will continue to register good economic growth. The Congress Party has a strong mandate from the electorate to make things happen. I think the key factors going forward will be an acceleration of infrastructure building and an improvement in government efficiency.

2.  India’s economic model is quite unique and grows out of the multi-ethnic, multi-religious and multi-class characteristics of the nation. In that sense, it may not be justified or even preferable to transfer it to other countries. There are, of course, certain elements that I think can and should be transferred, including the open nature of debate and the prevalence of English education in the country, making the absorption of international know-how easier.

Hello, do you have any general thoughts for people starting to invest in the markets?
– Andrea, Budapest

I believe it is important not to jump headfirst into any market without first deciding what risks you are willing to take. Also, you should separate the money you need for your daily life from the money you are willing to put away for a few years (preferably five years). If you do decide to invest, it is important that you invest your money not just in your own country but in a diversified global portfolio. In this way, the volatility of your holdings is likely to be less and you will gain exposure to markets all over the world. Dollar cost averaging is also important: put aside a fixed amount to invest every month and invest that amount regardless of the market level.

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