Investment Adventures in Emerging Markets

Readers’ Questions Answered Part IV

Here are my responses to recent questions from readers.

Can you comment on Brazil? Where do you see Brazil 10 years from now?

–          James, United States

Brazil is a key producer and exporter of commodities. Strong commodity prices associated with a solid domestic demand for goods and services have been key drivers of its economic growth. Hence, it is likely to benefit from rising global demand, including demand from China, for energy, metals and other commodities.

Brazil is also a country with a large, growing consumer base. Brazil’s economy is diversified and largely domestically driven, with exports accounting for less than a quarter of GDP. This domestic strength is one of the reasons for the Brazilian economy’s relatively faster recovery compared to most other globally-exposed economies. Its big consumer market creates opportunities for a wide range of firms, including financial services providers, health care firms, cosmetics companies and beverage manufacturers. In addition, Brazil will be hosting the FIFA World Cup in 2014 and the Olympics in 2016, hence, it is expected to invest significantly in infrastructure that should help drive economic growth in the coming years as well as improve the basis for stronger sustainable growth in the long-term.

We expect Brazil to continue its development by increasingly investing in improving its infrastructure, as supported by its large oil exploration campaign and the other reasons cited above. Capital should continue to be attracted to the country on the back of these strong drivers and Brazil should remain in a sound financial position.

Are you investing right now in India? What level of corrections are you expecting? Given a 2-year view, can I invest at these levels?

–          Steven, India

We cannot disclose what we are actively buying and selling, nor do we try and make specific predictions on the market levels or individual stocks.

However, India does offer an exciting opportunity for investments given the strong growth rates, nascence of many new businesses and the quality of entrepreneurs. Moreover, India’s huge consumer market is another important factor, which should support the market’s recovery in the future.

Over the long term, the growth rate of India may offer a good platform for Indian companies to deliver strong results. India has one of the largest populations in the world and thus represents a huge consumer market. Moreover, with half of India’s people under the age of 25, they should be able to support their aging sector. This means that India will continue to have both a strong labor force and a large consumer base.

In addition to strengthening consumer spending, India benefits from the availability of skilled manpower and excellent managerial talent, which provides it with an edge in the service sectors. Infrastructure development is another area that could also contribute to the recovery of the economy. India’s relatively strong fundamental characteristics and the accumulation of foreign exchange reserves also puts the country in a much stronger position to weather external shocks.

1) What are the factors needed to become a great fund manager during such volatile equity markets?

2)   What do I have to do to specialize in emerging markets investing?

– Stewart, Korea

1)       Discipline, humility, the love of study and the willingness to work hard are some of the key factors, which I’ve shared in an earlier post on personal qualities of a good investor.

Discipline is necessary for one to take a long-term view and be patient.  You have to stay tough when all those around you are losing their cool. Then you must be humble and be ready to admit your mistakes, which I believe is an indication that you are capable of change.  In addition to the attributes mentioned above, we look for people who can work well as a group, given the team approach is an integral part of our investment culture at Templeton.

2)       Investing in emerging markets can be viewed as a combination of art, science and skill.  Art is necessary to be creative.  Science is required to examine the facts and interpret them objectively.  Skills are needed to understand the correct time to buy and the correct time to sell.

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