Sunday, September 26, 2010

Going Global: Thoughts on investing in Emerging Markets

Investors are increasingly aware of the opportunities in developing regions around the world. The focus on the BRIC countries - Brazil, Russia, India and China (the acronym was introduced by Goldman Sach's Jim O'Neill in a 2001 paper entitled "The World Needs Better Economic BRICs") addressed the shift in global economic power toward the developing world. Growth drivers include a large market opportunity, coupled with the growth of a large, youthful and increasing affluent population that needs improved physical infrastructure, better health services, and a broader array of consumer goods. In addition, these countries are significant players as both global importers and exporters of a broad array of products and services. A broader view of the developing market opportunity should be considered which includes Argentina, Chile, Colombia, Czech Republic, Egypt, Hong Kong, Hungary, Indonesia, Jordan, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, Thailand and Turkey among others.

This past week, Bloomberg News noted that billionaire investor Sam Zell's Equity International unit is increasing its focus on Mexican and Colombian real-estate firms. At the same time, Financial Times columnist Martin Wolf highlighted the cautionary comments from Chinese premier Wen Jiabao who stated, "In the case of China, there is a lack of balance, co-ordination and sustainability in economic development." Wolf 's concern is that "The longer rebalancing is postponed, the more painful the adjustment will be. The Chinese economy of two decades from now will have to be vastly less investment-driven than the one of today. How smoothly and how soon will it get there? These are huge questions."

MY TAKE: While there is a mantra of "buy emerging markets", investors should not lose focus on the need to understand the business drivers, valuation and risks associated with potential investments. Understanding the maturing and stability of the investment environment in each region is also important. This week, as a brief primer, I am sharing several charts which compare the per capita gross domestic product (GDP), population and population density for the largest (by population) economic regions globally; along with the International Finance Corp's Investor Protection Index ratings which measures the strength of shareholder protection from asset misuse by directors. In the coming weeks, I look forward to expanding this discussion with you.

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