Growth Rates

I had an email come in asking me to rank the growth prospects for several emerging markets because the person was trying to decide what markets to invest in. He listed a few markets that he was considering. This comprised the usual suspects.

The question is a good chance to address more about process. I view trying to guess which emerging markets will be hot this year as very difficult to do. If you get the GDP right, what's to say the stock market goes along with GDP, it may not.

Each emerging market I invest in plays some sort of role based on what the country brings to the table. For example, Brazil is a very resource rich and has periods of excellent growth. Brazilian stocks have done very well for the last couple of years because of the global commodity theme.

China has a role in most client accounts because I buy into the country becoming an economic super power (if it isn't already). The stocks were doing very well up until a couple of days ago. The number of people, demand issues and other things I have written about makes this a very obvious idea, at least it does to me.

Another tailwind to China, for US investors, is the general uptrend in the reminbi vs. the dollar.

If you are lucky enough to have room in your account to isolate narrow emerging market themes, as opposed to one broad fund and nothing else, you may have an easier time with this approach.

No matter what Chile's growth rate is this year, the country is going to sell a lot of copper and have constant stock market purchases from its national pension system.

Instead of guessing about whether South Africa will do better or worse this year than some other country, I would rather just keep an eye on how that country is doing. If things change politically or there is some sort of fundamental economic change, or some problem with demand for stocks, that might be a reason to reduce or eliminate exposure.