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Investing in Emerging Markets?


mcliu
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Does anyone invest in emerging market securities (ex. Thailand, Philippines, Brazil, etc..) on this forum? Would love to hear your insights. Particularly on:

- Value opportunities (do they exist?) / Market sophistication (more opportunities since investors are less sophisticated?

- Logistics of trading (how would you buy/sell from North America?)

- Obtaining company data (in English)

 

Cheers,

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I'm currently looking at investing in small cap ETFs from emerging markets. I figure that these are an illiquid group comparatively, and maybe I can capture the "small size premium" by buying up baskets of them especially as I have an infinite time horizon.

 

Methuselah? 

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I have spent time looking at Africa. I looked at all the listed stocks in Kenya and Rwanda (all 3). I never bought anything. I've heard there is deep value it Botswanna.

 

As for buying just contact a local broker and setup an account. I've talked to a number of brokers in Africa and setting up an account is very easy. The problem for me is most will only pay dividends in local currency to a local bank. So you end up with a brokerage and a bank account. The only problem is I'd need to fly to Africa to get my money out. The ones I looked at wouldn't do wires or remote withdrawals. So buying a stock with a 10% yield suddenly isn't as attractive.

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Botswana debt yields very high, especially given that it is AAA rated...no idea how to buy it though.

 

Simple. Go to the Botswanna exchange website and contact the brokerage companies authorized to trade there and ask how to open an account. I bet you can do it all by email, and tomorrow morning you'll have five or six instruction packets in your email.

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Didn't you say you needed to fly to Africa to withdraw the money? What would be the point of buying it if you need to be in Botswana?

 

 

I recently had an account opened in India, that was a giant pain.

 

Dividends, and that was Kenya. Each country is different. I'm guessing your Indian? There are all sorts of crazy restrictions to ensure no non-Indian invests in India outside of a mutual fund. Lots of bargains in India.

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I have a small position in Mongolia Growth Group, which owns commercial real estate and an insurance company in Mongolia.  The CEO is a board member here and his letters to shareholders are a good read as well as his blog where he talks a lot about emerging markets.

 

A good book you might want to pick up is World Right Side Up: Investing Across Six Continents by Christopher Mayer.  He talks about investing all over the world, he's traveled just about everywhere and gives some good suggestions in each region. He interviews CEOs and fund managers, talks about trends he sees when he visits, talks about individual companies, industries, real estate, and mutual funds/hedge funds/ETFs.  For instance he mentions Mongolian Growth Group on his section about Mongolia and has quotes from his interview with its CEO Harris Kupperman.  I haven't yet invested in anything as a result from reading the book (I already had my small position MNGGF before reading it), but I found it a highly interesting read.

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I have a small position in Mongolia Growth Group, which owns commercial real estate and an insurance company in Mongolia.  The CEO is a board member here and his letters to shareholders are a good read as well as his blog where he talks a lot about emerging markets.

 

A good book you might want to pick up is World Right Side Up: Investing Across Six Continents by Christopher Mayer.  He talks about investing all over the world, he's traveled just about everywhere and gives some good suggestions in each region. He interviews CEOs and fund managers, talks about trends he sees when he visits, talks about individual companies, industries, real estate, and mutual funds/hedge funds/ETFs.  For instance he mentions Mongolian Growth Group on his section about Mongolia and has quotes from his interview with its CEO Harris Kupperman.  I haven't yet invested in anything as a result from reading the book (I already had my small position MNGGF before reading it), but I found it a highly interesting read.

 

Yes, the Kuppy blog is good, didn't know he posted here, very cool!

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I'm guessing your Indian? There are all sorts of crazy restrictions to ensure no non-Indian invests in India outside of a mutual fund. Lots of bargains in India.

 

Interesting, any ideas? My account has just been sitting there...

 

Search the board archives, someone posted a massive document with hundreds of Indian net-nets, I'd say it's a starting point.

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I have some experience with investing in net-nets in India, getting the adequate information(to ensure MOS) is quite painful. I don't think it is worth the risk/reward doing net-nets. Good companies with proven management with secular wind at their back and buying at reasonable prices is the way to go until they are grossly overvalued. As they are growing economies, there are lots of industries, poised to grow. Some cases, they will grow more than the GDP since they start at very low base(finance & infra etc).

 

Take a look at the deposit/loan growth in banks.

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Yes, the Kuppy blog is good, didn't know he posted here, very cool!

 

I'm actually starting to doubt my recollection on that fact.  I thought I found his blog originally because he was posting here, but I can't find any posts by searching, I may have found it because someone else was posting about it.  Regardless it is an excellent blog to follow.

 

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I have some experience with investing in net-nets in India, getting the adequate information(to ensure MOS) is quite painful. I don't think it is worth the risk/reward doing net-nets. Good companies with proven management with secular wind at their back and buying at reasonable prices is the way to go until they are grossly overvalued. As they are growing economies, there are lots of industries, poised to grow. Some cases, they will grow more than the GDP since they start at very low base(finance & infra etc).

 

Take a look at the deposit/loan growth in banks.

 

I agree with Gopinath.  I have a brokerage account in India too ( I am an Indian living in the US) and I have just been sitting on a lot of cash rather than investing in net-nets or attractive low P/B stocks because

 

(1) I am severely time constrained and whatever time I have, I am mostly busy trying to find investment opportunities in US/Europe/Canada ( most of my investment funds are in the US)  :P

 

(2)  Not to generalize, but I cannot always trust the financials of small/medium cap companies in India ( have been burned quite a few times before..not that the large cap companies are that much better). A lot of companies I have come across have muddy reporting standards with few details about the actual business to make sound investing decisions and there have been quite a number of cases of audited results being grossly misleading ( I don't have the bandwidth or resources to visit every company I invest in or talk to management and rely mostly on quarterly/annual reports). Also keep in mind that most Indian companies do not publish quarterly cash-flow statements and sometimes even balance sheet statements like most US companies, so visibility into cash flow/accruals and assets will be limited for most of the year. In fact for quite a few of the small/mid cap companies all you get for your quarterly is a scanned copy of the financials without any management discussion or visibility into those earnings ( although in the last few years things have improved somewhat). In other words, that can't-miss "opportunity of a lifetime" net-net stock may not be a net-net at all when you consider their true assets and liabilities.

 

(3)  A sizable number of companies are family owned where families have been at the helm for generations and sometimes treat these companies as personal piggy banks.  These companies often siphon money away using off-balance sheet entities and other not-so-honest means ( I don' want to name names here but I have quite a few friends in the investment banking/money management business who deal with these companies and snicker at their financials calling them " a joke"). Minority shareholders are ignored at best and exploited at worst. Unfortunately, one cannot short these stocks effectively as shorting stocks in India is culturally taboo and as far as I know govt. regulations do not allow individual investors to hold short positions for a longer time period ( but I could be wrong here), .

 

(4) Even though govt. has stringent regulation on leveraged entities like banks ( I don't think I have seen a bank till date which is 30:1 leveraged or more as some US financial institutions were before the crash), stock market regulators are relatively less effective than regulators in the US/Europe in holding companies accountable for their reporting. Sometimes it's because of political ties some companies have that make investigations into their financials difficult and prosecution even more difficult ( I owned stock in a company belonging to one of the largest industrial families in India and even after the CEO was found to engage in clear fraud there hasn't been any legal measures taken till now i.e. 3 years later),  but also sometimes they are severely constrained by bandwidth/number of employees.

 

(5) Due to the above and lack of shareholder activism, unlocking value is very difficult. I know many investors, including me, often start with financials and 10Ks/10Qs. But in India, I think it makes sense to start with management and look at their long term track record and how they have treated minority shareholders. For instance, I would trust the Piramal group of companies much more than others(e.g. Reliance). Yes, that may mean sticking to large cap stocks and missing some hugely undervalued small caps , since their leadership is much more visible and typically have a long history you can investigate. For me, that's an acceptable trade-off as I tend to think more about my downside than upside.

 

 

My comment here is not to deter or discourage anyone from investing in India. I know quite a few bloggers/investors who have had phenomenal success investing in India. For those looking at inefficient pockets of capital in the world, I am sure there are lots of bargains to be found and lot's of money to be made. However, for any investor who is sitting half-way across the world and who has access to nothing else but the financials of the company or news reports from media, I would recommend caution. If one is looking at net-nets only, I think it makes sense for an investor to spread his/her net-net bets over several companies and buy a basket of stocks rather than concentrate on a few can't miss stocks.

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There are all sorts of crazy restrictions to ensure no non-Indian invests in India outside of a mutual fund. Lots of bargains in India.

 

I am not sure that's true anymore. As far as I know India opened up it's markets to <a href="http://articles.economictimes.indiatimes.com/2012-01-10/news/30611898_1_qfis-investors-indian-mutual-funds"> qualified foreign investors</a> recently, including US citizens, to invest directly in stocks, although only up to 5% of total outstanding shares. <a href="http://stockriters.com/wp-content/SEBI%20QFI/1344938191630.pdf">Here a FAQ on QFIs</a>

 

Check with Interactive Brokers. It may be a pain to open an account as a QFI, but maybe worth it.

 

I haven't looked at it in details since I cannot have both accounts, but you can try. I would be curious to know about your experience.

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I have been investing in Indian markets for over a decade and have done a few net-nets, but as gopinath has written, there are quite a few companies which are growing at 2x GDP , have a tailwind and a long runway ahead of them. Some of these sell at reasonable valuations and have decent managements too.

Of course the accounting is suspect in a lot of companies and so is the management, but if you turn enough rocks, there are enough good ideas to get very good returns. 15% returns are par for the course

 

Net-nets or the cheap stocks are usually so for a good reason and can remain cheap for ever

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