Emerging markets may offer the best risk reward ratio of all markets now. But which emerging markets offer the best value?
In the last three messages we looked at the importance of investing in value markets today:
We saw how Jeremy Gratham (one of the top fund managers in the U.S.) feels that emerging markets offer special value because they have had their blood bath. The index of the whole emerging equity market trades at a multiple of 8.5 times earnings. Gratham feels that they should probably trade at 15 or 16 like major markets. So sooner or later he feels that they will rise to 15 or 16 times earnings, just as sooner or later the U.S. market will fall to 17 times earnings (from over 25 now). This means that these emerging markets may offer the greatest opportunity of all.
But are there some emerging markets that offer better potential rewards than others?
Once again we can rely on research and analysis from Michael Keppler to find the best value emerging markets. Michael, an Eclub advisor rates the markets each month. State Street Bank and Trust (one of the world's largest fund managers) uses Keppler's guidance to manage their Global Advantage Emerging Market High Value Subfund. This fund has won the Micropal award as best performing fund in its class in 1994, 1995 and for the three year period 1994 to 1996. Plus the fund won the Capital Fundkompass award for performance in 1997 and the Standard & Poor's Investment Funds award for 2001.
This fund is up 32.6% compound annual return since December 1988 compared to 8.5% compound annual return for the S & P / IFCI Index. For more about Keppler's analysis go to KAMNewYork@aol.com
Keppler's current valuation of emerging markets is based on price to book value, price to earnings, dividend yield and return on equity and as with his major market ratings he divides the emerging markets into Top Value (buy candidates), Low Value (sell candidates) and neutrally rated markets. Here are his latest ratings:
Top Value Brazil Colombia Czech Republic Korea Slovakia Sri Lanka Venezuela Low Value China Egypt Hungary India Mexico Morocco South Africa Turkey Zimbabwe Neutral Argentina Chile Indonesia Israel Jordan Malaysia Pakistan Peru Philippines Poland Russia Taiwan Thailand
Does this guarantee you'll make money investing in the top value emerging markets? Not a chance! You still need to find top value shares in the top value markets and to select the right shares that suit your particular situation as explained in my last message.
However starting with the right markets is a big step in the right direction. In upcoming messages we'll look at some of the Top Value markets in more detail and see if we can find some shares available in them. In the mean time note that the Czech Republic is a top value market now and that we have been looking at this market in our course International Investing Made EZ. So you may want to take a look at the course again. Until next message, good global business and investing!