First it’s Japan, and now India.
When Toyota announced its first annual profit drop in nine years, it pointed to the U.S. as the culprit. Then, in the same breath, Toyota acknowledged a stronger shift to emerging markets like China, Latin America and the Middle East. That was on May 8th.
Four days later, India outsourcing tech giants Satyam Computer Services (NYSE: SAY), Infosys Technologies (Nasdaq: INFY) and Wipro Technologies (NYSE: WIT) are giving the U.S. the bum’s rush as well.
In a May 12th article in the India Times, the three major IT outsourcers, which have a combined market cap of $52.7 billion, said that they’re moving on to emerging markets as the U.S. “lurches towards recession in the wake of the subprime crisis.”
From our perspective, it’s not only laughable, it’s downright pathetic. Especially when you consider that $52.7 billion is what the Bush administration wants to cut by 2011 from the Federal program that includes funding for education, training and employment. Heck, we’re a nation that can’t even get our DVDs to stop flashing 12:00. By 2011, we won’t even know how plug in the darn things.
As the India Times tells it, India’s major outsourcers are “shifting focus” to emerging markets such as the Middle East and Africa, where technology spending is growing twice as fast as in developed countries such as the U.S.
Quoting the India Times, spending on information technology in Asia-Pacific, Latin America, the Middle East, Africa and Eastern Europe is on course to hit $1.1 trillion this year, up from $964 billion in 2007.
India’s software and back-office outsourcing industry is on course to ring up sales of $64 billion in the fiscal year just ended, up from $48.1 billion, says the National Association of Software and Service Companies. Whereas the U.S. accounted for 60% of that revenue in 2007, our share is expected to fall to 50% three years from now (that sounds like 2011 to me).
The article goes on to say that the new emerging-market emphasis by the Indian outsourcers is a move to diversify risk. This is an interesting development, since the U.S. economy was once considered the safest in the world. Now it’s riskier than Africa?
Well, that’s a good question to ask yourself? Are emerging markets more risky than the U.S.?
If you believe the pap fed to us by Big Media, the answer is a resounding “yes.” If you look at the charts, the answer is “I’m not so sure.” To see what I mean, check out this chart. The iShares MSCI Emerging Markets Index (EEM) has crushed the S&P 500 (GSPC) over the past 12 months.
I don’t think Big Media’s advertisers would like for you to know that despite all the stuff that’s accumulating 20+% interest on your credit cards, folks in emerging markets may actually be happier than you — or even wealthier!
Well, I can say that for companies like Satyam, Infosys and Wipro, the numbers certainly send a louder message than Big Media’s propaganda.
By early 2007, there were some 2.2 billion cell-phone subscribers worldwide. Experts expected that to hit 3 billion by the end of last year, with the lion’s share of the growth in India, China, Africa and Latin America. Since only one third of people in developing markets have a cell phone, operators believe the market is enormous.
The emerging market tech boom goes beyond cell phones…
When Microsoft announced flat revenue results for Q3 2008, Colleen Healy, Microsoft’s general manager of investor relations saw a silver lining. “We estimate PC unit growth rates moderated from our January expectations by a couple of points in mature markets, partially offset by an extra planned strength in emerging markets…” she said.
In January, IBM’s own outsourcing group, called Global Services, said its backlog for business bolted $2 billion in a single quarter — bringing the total to $13.4 billion. And where is a lot of that new business coming from?
Well, there are the usual suspects of BRIC (Brazil, Russia, India and China). More than one-fifth (22%) of IBM’s revenue now comes from emerging markets that are growing at 20% or higher rates. As you can see in the chart below, that includes Latin America, South Africa, Eastern Europe and others.
The way it works in emerging markets is that they are using the latest and greatest technology to build digital infrastructures from the ground-up. That means they don’t have to really worry too much about backwards compatibility with aging technological infrastructures — like we do here in the U.S.
In the emerging markets’ world of the new, it’s a gung-ho charge into wireless multimedia, e-commerce and social networking — the fastest growing markets in high-tech today.
Right now, I’m going with smart money at Satyam, Infosys and Wipro versus the ego-maniacs in Big Media.
If you don’t have a viable emerging-market strategy, give it serious consideration today.
–Irwin Greenstein
May 14th, 2008 at 10:09 pm
It is a pleasure to read information posted by any intelligent financial resource.
If we understand this community as respectable knowledge and percentage this with all financial advice then it becomes very selective.
But from all this respectable knowledge I have yet to see one grand conculsion.
It is like a big puzzle and not one person yet has seemed to put all the pieces together.
So many have it 90% completed.
In the past I have been cheated too many times. If you want to understand what the puzzle looks like completed then somehow I must be reimbursed.
Christopher
May 15th, 2008 at 10:21 am
Christoper, not sure what you mean by “cheated” but emerging markets are risky and confusing. But I guess my feelings are that, with our U.S. economy, everything is risky and confusing. The old stand-bys are becoming irrelevant and untrustworthy. It’s a point in history where you really need to stand back and examine your objectives and inner-self before really doing anything.
May 17th, 2008 at 9:29 pm
Irwin:
I have been trying to find how I can invest in some of the things you talk about, but cannot find where, or how to do it.
Can you recommend who, what, and where?
Gene
May 19th, 2008 at 9:10 am
Gene,
Check out the Taipan Trader at
http://www.taipanpublishinggroup.com/taipan-trader/
It’s run by Sara Nunnally and Adam Lass. Sara travels to emerging markets and reports back what she saw first-hand. Adam makes the trading recommendations.
You can also sign up for our free daily e-letter called Taipan Daily at
http://www.taipanpublishinggroup.com/tpgsitemulticonfirm.html
If go to our home page, you’ll also find some free reports on emerging markets. Our web site address is
http://www.taipanpublishinggroup.com/
Check out the right hand navigation bar under “Most Popular Reports.”
You should also talk to your broker. Many emerging market ETFs can be traded here in the states. The ones that can’t require an overseas account, and again your broker should be able to help you out.
Remeber, emerging markets are a challenge for individual investors, but that’s why the profits can be rewarding. If it was easy, everyone would be doing it and there wouldn’t be quite as much money available to people who venture in.