So what's a smart punter in a rich country to do to offset the foolishness of his government, but to buy emerging markets? May as well make the most of what you have, and stick that in a country where the stockmarket will go up and the currency may as well. So say the jungle drums of the day.
Such a decision looks more inevitable by the day, but implementing it is easier said than done. Some investment choices are easy, such as picking Asia as the destination. It is made up of many of the world's fastest-growing economies, and as it integrates, the cluster effect will drive greater scale than for, say, Brazil, which is surrounded by financially unsuitable neighbours.
This month, Asiamoney asked professional fund managers their opinions on which are the region's Best-Managed Companies. The winners of the poll were clear. But the best-managed companies are not necessarily always the best investments. The money business can promote residency and language bias. The bulk of fund managers accessible in the English language press are expatriates based in Hong Kong. Half of the poll respondents were based in Hong Kong or Singapore, and those fund managers tend not to cover Japan.
One hopes that fund managers do not use these criteria to invest, though the top two picks in both India and China have had punters laughing all the way to the bank.
Fund managers set great store by communications with companies; their raison d'être is that they are able to extract more information from companies than an Internet punter. There must be some justification for fees charged.
This communication bias does no harm in Occidental lands where there is a common language and culture between money merchant and manager, but may be doing a disservice to investors in Asia. The observer of a Korean company may well be an Indian who doesn't know a Han from a gull. Money managers may be rating highly those markets and companies where English and financial-speak skills are high, while ignoring those where they aren't.
An informed investor may just be better off going with the fundamentals. One fact stands out above all: the capitalization of many emerging countries' stockmarkets is a fraction of GDP, as opposed to the US market, whose stockmarkets are worth a multiple of US GDP. The best emerging economies will grow at 5%-8% each year for the next two decades, implying a possible quadrupling of their size in the medium term. Some of that growth will come from new entrants to the market, making a good case for buying quality new listings. The rest will come from companies and industries that already exist.
Bangalored, the verb that describes having had your computer-programming or call-centre job pushed to the eponymous city, says it all. Invest in the industries that your country lacks and is likely to import as goods or services. If that means IT and call centres from India, and computers and toys from China, so be it. Other than that, go for force multipliers, such as banks, that are businesses that support the general bettering of the business climate.
Markets are usually smarter than managers, so stick with foreign stocks listed in New York or London. With ADRs and GDRs the market will have done some homework for you by listing competitive industries with expectations of growth, and companies with some semblance of governance. am