There is a cautionary article in the WSJ about emerging markets that warns of a possible crisis in Hungary, Kazakhstan, Russia, Ukraine, and Estonia because of how they have borrowed money.While it seems there are more people that call for a crisis than actual crises that occur this point could certainly pan out exactly as opined but I don't know.
It is much easier to know that certain countries face the same risk. For example Iceland, New Zealand and to a lesser extent Australia are all vulnerable to yen strength. It is easy to see whether a particular country is a deficit country or a surplus nation and chances are you want exposure to both, that is if you break it down to the country level.
Of the Eastern European markets mentioned above Russia is the easiest to access. Russia has a lot going for it; surpluses, strong currency, natural resources and so on. There is some sort of political risk (the amount and reality depends on whom you ask) and if the price of oil cut in half Russia would be hurt. Clearly anyone wanting to add Russia does so expecting to add outperformance versus their domestic benchmark. No one adds Russia as a defensive measure.
It almost makes the argument that with any Russian stock or fund you buy you should really go for a lot volatility. If the selection of Russia is correct a more volatile Russian stock, or whatever, will really do a lot of lifting withing the portfolio. The place for moderation is in the weighting not the stock selection (bottoms up research still needs to be done of course). Putting 2% into a stock that could go berserk in either direction is not the most reckless thing you could do, far from it.
Investors get in trouble when they get so enamoured with a stock like this that they put 10% in it.
All of this theory aside it is difficult for a lot of people to buy a stock from a place like Russia but the point about how to allocate risk within a portfolio should be relevant. Putting more than 2-3% into something you think is very volatile, regardless of whether it really is or not, will bite you at some point.
13 comments:
"Investors get in trouble when they get so enamoured with a stock like this that they put 10% in it."
Well I bet you have more than 10% of your investments denominated in US dollars, via companies listed in the US who derive their income in dollars, or heavily weighted US Dollar involvement at the macro level. Likely going to be proven the worst play of the new century.
The fat man is approaching the see-saw. The fat lady is in the building.
The peanut oil is heating.
~~
On another thought, I'm sorry to see C. Sheehan throw in the towel. It just goes to show the "little guy" has no real influence over the system. They will be classified as cracked pots, just like the UFO advocates. The people have lost to big business. Let me put that soapbox back in the violin case I bought it in, thru the security screeners. And maybe I'll get my grandmother's knitting needles back from quarantine.
How can you remotely... recommend anything related to the USD, given the obvious demise, generally acknowkledged?
How can you not issue a flat out SELL on anythiong that relies on the US Dollar as income?
You are either sandbagging the truth or manipulated by the paid influence of the meistros. Or clueless.
If you haven't been paid off; how sorry of you to look after your own welfare in light or your investor followers..
Bush is taking care of his own before the great demise.
Plan accordingly.
DB
I have no idea what your comment is supposed be about. It strikes me as insulting as I believe you are calling me a sandbagger as your context has nothing to do with the post. If so, time for you to hit the bricks.
Well Rog...
I certainly would never intentionally insult...
Other than to point out you might be a sitting duck.
Your base concept has to be valid for your entire concept to be valid.
Maybe it is not.
Don't blame the messenger.
Dave B
you are done here, goodbye.
I'm glad Dave B. is history. He added nothing positive, and the negative he added wasn't constructive.....just wild claims and conspiracies backed by nothing. Lots of strange analogies and metaphors. But I wonder about a second chance, Roger. With one more beer he might discover the REAL assassin of JFK!!!
I stop by Random Roger's
Big Picture with interest almost every evening, and I always feel like I benefit from it. What a shame one has to tolerate dave b's in an otherwise cool place.
Roger.
What then do you think about the situation in S. Korea with them actively talking to N. Korea now?
I was thinking that now might be a good time to pick up an ETF such as KEF. It looks like Kim Jong Il might be sobering up now and is more willing to join the human race. That could positively move the sector soon.
I have never been a fan of Korea and still am not. Of course the price action says this has been the wrong point of view.
I don't know a lot about Korea, relative to other countries I have studied more. The North Korea aspect is one I don't really want to mess with given that great returns can be had from other places w/o North Korea next door. But that's just me.
It may not matter a whole lot and this may be very picky but KEF is a closed end fund not an ETF.
I posted this article by Hulbert a while back: http://tinyurl.com/38ennr
The South Korean miracle
Commentary: Fosback sees stocks as 'extraordinary valuation opportunity'
Maybe yes, maybe no. There's a report today that Kim Jong Il's heart disease is worsening.
http://www.msnbc.msn.com/id/18923894/
iShares S. Korea ETF (IWY) price history seems to be correlated to KEF although not as volatile.
" because of how they have borrowed money."
Zero down and no income verification loans?
Thanks guys on your S. Korea comments.
I do wonder now that if Kim Jong Il dies, would S. Korea's market go up? Or would there seem to be more unrest and thus a market decline?
I forgot to mention that ishares S. Korea symbol should be EWY; not IWY.
Thanks Larry. KEF doesn't pay a dividend either, and IWY is up about 50% in the last year. Is there still upside? You decide:
http://www.marketwatch.com/news/story/argument-buying-south-korean-stocks/story.aspx?guid=%7B684BD427%2D89C1%2D4272%2D979A%2D585D7E942F14%7D&siteid=yhoof
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