Embracing Emerging Markets

by | Oct 13, 2007 | Archives

Here is some interesting news form Jyske Bank about emerging market bonds. They recently wrote:

“The American interest-rate cut on 18 September caused risk tolerance to rise again after a period in which much attention was paid to the credit market in general and the sub-prime sector in particular. Therefore, emerging-market bonds posted excellent returns in September.”

This interest shift created better prospects for emerging markets for two reasons. First, the lower dollar rate allayed fears that there would be a US recession that could lead to a global economic crash. Second, the lower interest made investing in the US dollar less attractive.  “Why invest in the low interest safe dollar when you can invest in bonds of other currencies at higher yields. They are safe because the dollar interest rate is falling.”    This is a bit of warped logic but who ever said that logic correctly moved stock markets?

This must make us think twice about investing in emerging markets. Emerging markets have outperformed major markets by bucket loads for at least the last six years.

This year to date, the MSCI overall Emerging Markets benchmark is up 23.8 % in US dollars compared to the MSCI World Total Return Index being down 0.08 % in US dollars.

For one year the same emerging markets index (in US dollars) is up 58.99% compared 23.05 for the same world index. Over three years the index on emerging markets is up 37.88% versus 17.27% for the world index.  The emerging market index is up 35.63% compared to the world’s index rise of 18.43% over five years.

We have recently seen a terrific performance of the Emerging Market Portfolio we have formed and tracked with Jyske Bank in 2007.

Portfolios 2007 Mar 27  June 28 July 20 Aug 17 Sept 28
Emerging Market 12.81% 54.31% 67.67% 30.50% 103.22%

Our 2006 model Emerging Market Portfolio that we created and tracked with Jyske Bank’s help was also up over 100% in a year at 114%. 

Now as we saw above Emerging bonds are getting a boost as well as emerging shares.

Turkish TRY denominated bonds are the best performing with a 29.03% (in US dollar terms) rise this year. 

BRL for the year. Brazilian real denominated bonds are close behind with +22.29% rise.  Dollar linked emerging currencies are not faring as well. The Mexican peso denominated bonds are at the bottom, yielding a return of -4.62% (in US dollar terms).

Jyske Bank feels that emerging bonds will continue to be strong and says:  “We maintain our overweight of the emerging markets for a bond portfolio. The fundamentals have improved continuously in recent years, and the asset class is therefore not so vulnerable any longer. The prospects of more interest-rate cuts in the US and continued fiscal- and monetary-policy discipline in the emerging markets will also support the countries in the period ahead.

Following a very strong period, a round of profit-taking cannot be ruled out. However, we assess that we will see buyers enter the market at lower levels, and we expect to see a continuing inflow.

“Focus will still be on American economic indicators, but a slowdown in growth in the US will not be a significant threat to the emerging markets in our opinion. Global growth is still quite solid. And it is worth noting that the emerging-market economies account for approx. 70% of growth in the total global economy.”

Our multi currency portfolio tracking also shows the recent effect of the dollar’s fall as our Dollar Short Portfolio has surged ahead of our Dollar Neutral Portfolio performance.  Here is their recent performance.

Portfolios 2007 Mar 27 June 28 July 20 Aug 17 Sept 28
Dollar Short 20.12% 33.81% 40.31% 9.14% 42.71%
Dollar Neutral 16.58% 37.64% 38.07% 13.56% 34.74%

Until June, the dollar short portfolio was outperforming the dollar neutral. Then when the US stock market crashed…so did the greenback.  Wall Street has seen a rebound. Emerging markets have shot up. Emerging market bonds have jumped higher. The greenback has not. So if an investor wants a safe solid bond portfolio it should hold multi currencies.

This is why in 2008 we will add a sixth portfolio, a non leveraged Dollar Short Portfolio for dollar based investor.

You can learn why this performance has taken place in a sixteen page email report about how 13 economic forces now clash to shape investments markets ahead that show the rewards and the risks.  The report also outlines the

five Multi-Currency Portfolios we are tracking in our Borrow Low-Deposit High Multi-Currency Sandwich Educational Service. Details are at https://garyascott.com/catalog/bldh

Low Subscription Update. There is one last chance to take advantage of the low subscription fee.  The publisher we are working with conducted its first test market and just wrote to me.

“ Gary , The price test at $249 didn’t win out.  We’d have to test it again to get a more conclusive result.”

This means that you can start your subscription at the low, existing $149 price only today.  To take advantage of this and save go to www.garyascott.com/catalog/bldh

See why in tomorrow’s message we are adding one portfolio that is not enhanced with low cost loans.

Until then, may whatever you embrace be good!


This is why I have invited Peter Conradsen and  Henrik Villumsen from Jyske Bank to speak and be available for private consultations (no added cost) at the November 9-10 and 11, International Business & Investing  course in Cotacachi but have also.   Jyske Bank is one of the leading international investing and currency managers in the world. Their trading room process $50 billion of business a day. So this next course makes a huge amount of global investing information available to you.

Join us in Ecuador for all three of our November courses and save $398. See https://garyascott.com/catalog/ecuador-tours-november-2007