Aug 15 2008
Dollar Turn-around Has Analysts Questioning Emerging Markets
When the U.S. economy fell off a cliff, a bunch of investors fled to the “safety” of booming emerging markets, like China and Brazil.
Turned out to be a good bet for a while, until our credit crisis became a global disease… and even stellar markets had their corrections.
But now, on the slightest bump up in the dollar, some analysts are now questioning whether emerging markets is the best place for your cash. Some say that U.S. stocks are a better bet than foreign stocks.
What’s really going on is that other major currencies, like the euro and the British pound, are being hit by recession fears and the possibility of more bank write-downs.
The dollar hasn’t really risen that much on its own yet. We’re still seeing poor housing numbers and sky-high inflation. There have been bright spots in the U.S. economy, and I won’t deny that things are starting to look better, but a major shift back to holding only U.S. assets in your portfolio is a big mistake.
There are still some great choices out there in foreign markets, and the number of ways to access them as investors grows every day. Just look at the number of ADRs available for Latin American countries.
And get this: 2008 GDP growth for Latin American countries as a unit has been revised up 0.1% since the first quarter of 2008. Look at these projections for the year:
Argentina: 6.7
Bolivia: 4.5
Brazil: 4.6
Chile: 4
Colombia: 5.1
Costa Rica: 4
Cuba: 6.4
Dominican Republic: 4.9
Ecuador: 2.6
El Salvador: 3.1
Guatemala: 4.4
Honduras: 4.4
Jamaica: 2.3
Mexico: 2.4
Nicaragua: 3.5
Panama: 7.9
Paraguay: 4.2
Peru: 7.5
Uruguay: 5.3
Venezuela: 5
Investors would be fools to ignore some of these growth numbers.
Is it time for U.S. investors to come home to U.S. markets? It’s not for me to say for sure… I’m at least a little wary about this recent uptick in the dollar, and I’d like to see it rise of its own accord before I advocate for more U.S. stocks.
That said, there are deals to be had in U.S. markets, and in global markets for that matter. Without the euphoria of a bull market (or a bubble?) it boils down to fundamentals and value. And that goes for all investments worldwide.
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So-called analysts, probably prompted by their greedy bosses, are spreading the romour that all is not well with Brazilian stocks Petrobras and Vale do Rio Doce, Bovespa’s foremost blue chips. The fact is that, while some are scambling to patch up the cash flow mismatching undergone both in the US and the EU by selling their most valuable assets, wise investors and brokers are quietly buying up the two foregoing securities, one might be tempted to suspect the Brazilian government among them. It is commented by such misguided analysts, who are obviously expected to say what their bosses expect them and to be politically correct, that commodities like oil and iron ore are undergoing depreciation because of the so-called pending recession developed economies are already actually into. In reality, it is unlikely that Russia, China and India are going to slow their domestic development down because the so-called developed world is going broke. These countries are overloaded with foreign currency reserves, but maybe the US financial world is wagering that these countries are going to bale the US and the EU out of the outcome of their shortsighted greed, where financial institutions behaved as if regulations were non-existent, or, worse still, to be disregarded with impunity. This is not the case with Brazilian banks, which are solid, severely regulated, and are equipped with the most up-to-date IT available. The real estate mortagage market has only really got under way, now that ever since the law changed and people can now actually lose their homes if they default throughout a given period. There is no provision for homeowners taking out a second mortgage on their homes,. and the way Brazilian banks are conservatively run provision for such an extension to indebtedness through an increased mortgage, such provision is fairly unlikely to be sanctioned by credit committees here, except in exceptional circumstances. Meanwhile, the unwary in this country, most of them underprivileged, who until recently had little access to credit and consumer durables, are swampling themselves in debt for the main part, but the banks all have a fail safe, and are already negotiating the postdated cheques, overdrafts and credit card interest charges that have arisen as a result of rash spending. Investment in Brazil in infrastructure facilities is rife, without any significant help from the federal government.Investors already used to the particular ins and outs of this country are heavily engaged in project financing to come to fruition in 10, 15, 18 years time. Different PPPs are announced daily, and there is evidence that they are not just on paper. There is everything to do, and the structure, legislation and political will is in place The time is for investing wisely in this country, not for getting cold feet and penalising others for situations entered into through greedy, psychotic bank and political know-alls. Eight years ago so many events that have befallen the US would have been uncountenanced. It is time the powers-that- be climbed down from their ivory towers before the US Dollar becomes a currency nobody wants because of the ways it has been wasted. The Chinese are conquering Africa using barter instead of money, and, although no one really actually likes the Chinese, they are making strides in the Dark Continent that the US, had it followed the wise counsel of Mr Alan Greenspan, that the US should foster the purchasing power of developing countries so their people become stronger and stronger so they can buy goods produced in America. People have become too interested in making the quick buck, and the result is now staring everyone in the face. Renowned economists in this country have recently said that they see no light at the end of the tunnel for the US. Perhaps the US should stop thinking it has to interfere in the affairs of others, by ceasing to brandish the big stick and be the world’s policeman, and take a more humble, peaceful tack. Hopefully the candidates for US president will have considerably more common sense than the one incumbent, who, along with his croneys, has taken the US, the world’s economic locomotive, to the verge of bankruptcy. Let us pray for common sense and decency to return to its rightful place