Savvy investors know there is far more to the markets than sitting on your hands worrying about the fiscal cliff.
Believe it or not the world doesn't revolve around the United States-or the Western world.
In fact, The IMF's World Economic Outlook projects an emerging markets forecast with growth at 5.6% in 2013. That's down slightly from 2011 but far ahead of the measly 1.5% growth projected in the "advanced" economies.
That means investors need to focus heavily their investments in emerging markets, as we have done successfully over the past few years.
However, there's one new trick investors will have to learn going into 2013: the BRIC economies (Brazil, Russia, India and China) that have been so fashionable over the years, will all run into trouble next year and should be avoided.
The good news is the world is a big place and there are still emerging markets that offer investors the benefit of the world's fastest economic growth. My favorites are listed below.
Believe it or not the world doesn't revolve around the United States-or the Western world.
In fact, The IMF's World Economic Outlook projects an emerging markets forecast with growth at 5.6% in 2013. That's down slightly from 2011 but far ahead of the measly 1.5% growth projected in the "advanced" economies.
That means investors need to focus heavily their investments in emerging markets, as we have done successfully over the past few years.
However, there's one new trick investors will have to learn going into 2013: the BRIC economies (Brazil, Russia, India and China) that have been so fashionable over the years, will all run into trouble next year and should be avoided.
The good news is the world is a big place and there are still emerging markets that offer investors the benefit of the world's fastest economic growth. My favorites are listed below.
But first you need to understand why the BRICs lost their luster.
Of the four, Brazil looked like the weakest member at the time, since it was hovering close to bankruptcy. Meanwhile, Russia had a dynamic new leader, a new "flat tax" and incredible natural resource wealth.
As for the Far East, China was China, even then.
And India had a genuinely reformed its government under Atal Bihari Vajpayee, which helped cause growth to accelerate to very un-Indian levels.
I didn't trust Russia or Brazil, and China was difficult to buy back then, but I doubled my investment in the next three years on a simple investment in the Morgan Stanley India Investment Fund (NYSE: IIF).
With Goldman Sachs (NYSE: GS) recommending them, all these BRICs had to do was keep their governments under control and maintain a reasonable facsimile of free-market policies, and they would be rich within a generation -- or even sooner.
Indeed the progress over the intervening decade, in terms of Gross Domestic Product (GDP), has been rapid in all four countries. Yet in the wake of the financial crisis all four stock markets have been pretty disappointing, and now the prospects of the BRICs are nowhere near as bright as they once were.
You can chalk it up to the curse of too much money.
In the last decade monetary authorities worldwide, led by Fed chairmen Alan Greenspan and Ben Bernanke, have kept interest rates too low. Money has flooded into the emerging markets, especially the favored BRICs.
The result has been a surge of corruption in all four BRICs, accompanied by a surge in "malinvestment," a term beloved of the Austrian school of economists and describing investments, like the Nevada housing market in 2004-06, that is entirely misdirected and a waste of resources.
In China, the economy is slowing and there is a gigantic morass of bad loans in the banking system, perhaps five times the size of the bad loans about which everyone worried a decade ago. A 2008-style banking collapse and government bailout in China seems inevitable - and we know what that does to an economy!
In India the fine Vajpayee government of 1998-2004 was replaced by an ungrateful electorate with a return to the socialist Congress party, which had wrecked India's economy from 1947-1990.
The budget deficit in India, by both the central and regional governments, is gigantic now and is "crowding out" the private sector from the financial market. We also can expect a surge in inflation and a balance of payments crisis. Fortunately, there's another election in 2014; we can hope that the Indian voters do a better job than in 2004.
As for Russia, Vladimir Putin has effectively established himself as President for life, and has taken control of the economy's major sectors. The Rosneft buyout of TNK-BP indicates that the Russian state will use its resources to assert economic control. This is already working poorly, and it will stop working altogether when the price of oil drops.
Finally, Brazil is meddling in its major companies such as Petrobras and Vale, whose results have sharply deteriorated. Public spending is way out of control, mostly through subsidized loans from the state bank BNDES. Like Russia, Brazil will fairly quickly run into a balance of payments crisis and certainly won't enjoy its past rapid growth.
Since investors saw BRICs as a bloc on the way up, they will almost certainly panic simultaneously about all four on the way down, and cause a global financial crisis involving all four. That's if the Eurozone's problems or Japan's government debt don't cause one first.
However,there are other emerging markets whose prospects remain excellent. They include Singapore, Chile and the Philippines. Here's why emerging markets are better bets in 2013:
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2013 Emerging Markets Forecast
When Jim O'Neill of Goldman Sachs coined the BRICs acronym in 2001 it looked clever since all of them were poised to grow very rapidly and become major factors in the world economy over the next decade.Of the four, Brazil looked like the weakest member at the time, since it was hovering close to bankruptcy. Meanwhile, Russia had a dynamic new leader, a new "flat tax" and incredible natural resource wealth.
As for the Far East, China was China, even then.
And India had a genuinely reformed its government under Atal Bihari Vajpayee, which helped cause growth to accelerate to very un-Indian levels.
I didn't trust Russia or Brazil, and China was difficult to buy back then, but I doubled my investment in the next three years on a simple investment in the Morgan Stanley India Investment Fund (NYSE: IIF).
With Goldman Sachs (NYSE: GS) recommending them, all these BRICs had to do was keep their governments under control and maintain a reasonable facsimile of free-market policies, and they would be rich within a generation -- or even sooner.
Indeed the progress over the intervening decade, in terms of Gross Domestic Product (GDP), has been rapid in all four countries. Yet in the wake of the financial crisis all four stock markets have been pretty disappointing, and now the prospects of the BRICs are nowhere near as bright as they once were.
You can chalk it up to the curse of too much money.
In the last decade monetary authorities worldwide, led by Fed chairmen Alan Greenspan and Ben Bernanke, have kept interest rates too low. Money has flooded into the emerging markets, especially the favored BRICs.
The result has been a surge of corruption in all four BRICs, accompanied by a surge in "malinvestment," a term beloved of the Austrian school of economists and describing investments, like the Nevada housing market in 2004-06, that is entirely misdirected and a waste of resources.
In China, the economy is slowing and there is a gigantic morass of bad loans in the banking system, perhaps five times the size of the bad loans about which everyone worried a decade ago. A 2008-style banking collapse and government bailout in China seems inevitable - and we know what that does to an economy!
In India the fine Vajpayee government of 1998-2004 was replaced by an ungrateful electorate with a return to the socialist Congress party, which had wrecked India's economy from 1947-1990.
The budget deficit in India, by both the central and regional governments, is gigantic now and is "crowding out" the private sector from the financial market. We also can expect a surge in inflation and a balance of payments crisis. Fortunately, there's another election in 2014; we can hope that the Indian voters do a better job than in 2004.
As for Russia, Vladimir Putin has effectively established himself as President for life, and has taken control of the economy's major sectors. The Rosneft buyout of TNK-BP indicates that the Russian state will use its resources to assert economic control. This is already working poorly, and it will stop working altogether when the price of oil drops.
Finally, Brazil is meddling in its major companies such as Petrobras and Vale, whose results have sharply deteriorated. Public spending is way out of control, mostly through subsidized loans from the state bank BNDES. Like Russia, Brazil will fairly quickly run into a balance of payments crisis and certainly won't enjoy its past rapid growth.
Since investors saw BRICs as a bloc on the way up, they will almost certainly panic simultaneously about all four on the way down, and cause a global financial crisis involving all four. That's if the Eurozone's problems or Japan's government debt don't cause one first.
Three Emerging Markets to Buy
As investors, we can only protect ourselves to a limited extent, and certainly should not "sell at the bottom," as some unfortunates did in early 2009. Certainly we should not put our money in any of the BRIC trouble spots.However,there are other emerging markets whose prospects remain excellent. They include Singapore, Chile and the Philippines. Here's why emerging markets are better bets in 2013:
- Singapore is now at European standards of wealth and is projected by the Economist team of forecasters to grow by 4% in 2013 after a slowdown in 2012. It also ranks top or close to it on international indexes of integrity and business-friendliness. Try the iShares MSCI Singapore index ETF (NYSE: EWS).
- Chile remains the best-run country in Latin America, with high scores on integrity indexes and a strong mineral sector. Aberdeen Chile Fund (NYSE: CH) is the recommendation here.
- The Philippines has been off most investors' radar screens, but is expected to grow 6.0% in 2013. The iShares Philippines Investible Market Index ETF (NYSE: EPHE) gives investor coverage of this market, although at 17 times earnings currently its pricing is a little rich.
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Please note that the BRIC economies now include (for better, for worse, for richer, for poorer!) SOUTH AFRICA.
I hope that MONEY MORNING has really down to earth (grass roots) sources reporting on South Africa. A revolution started a few months ago and is spreading rapidly throughout industries. Marikana was one thing. Half as many people are killed on the roads every week. Casual farm workers are torching vineyards in Western Cape whilst striking for higher pay. They and many others don't seem to realise that one-in-four of the employable population is unemployed already. The last 2 months trade deficit is R25bn as foreign goods pour into the country and precious little is going out. Fracking is to commence in the Karoo at great FDI cost and it will be years before SA reaps the benefit (after the politicians have had their 'cut'). Investment in racehorses is the brightest star of the SA economy. The average value of a Ready-to-Run colt or filly has increased 379% over 10 years, 47.4% over 2 years and 28.7% in the last year. Many are American bred!
my grandmother was born in the phillipines to irish american parents
You don't mention Malaysia, but I think if one looks at their natural resources (including a horde of oil), per capita income, low debt to GDP and close proximity to so many developing countries he/she might want to keep this one on their radar.
God Bless the Philippines. A country of 100million people (10million is living overseas) with an average age of 23.5, skilled and highly educated people, the investors should take this opportunity. There's so many business that could be built in a country of 7,107 islands.
Philippines… Undoubtedly, yes it is! Hope all these will pursue and may God bless the Philippines.
Bingo, Martin. Brazil is meddling with PBR, to the extent that it gives the impression they want it to be a government owned entitiy for which the outside stockholders only have to cover the losses. This is inherently a good company, a great franchise, and, with the right equipment, a superb future for deep-drilling off its coast. Argentina gives the same impression with how they have handled YPF which was a far more interesting story a few years ago than it is today. So, I agree with you on Chile, its primacy in being run effectively, having a respected banking structure (from the ones I have looked at) and did you mention the wines? Keep up the good work.
Now is the best time to invest in the Philippines, the economy is one of the fastest growing economy in Asia, the only country who got upgraded by the International Monetary Fund by year 2012 – 2013, one of the breakout nation, low interest rates, the "Call Center Capital of the World" outperformed India, Manila, it's capital ranks first as $287 billion economy in South East Asia, Home of brilliant hardworking, resourceful, multitasking and English speaking labor force at very competitive cost. The so called and expected to be the Asia's leading "Tiger Economy". And most of all the business friendly government as it is doing reforms in making business more easier and more fun in the Philippines
just interested