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Thursday, May 25, 2006
From Global Momentum to Global Value
The recent pullback in international and emerging markets blunts momentum but highlights the need to search for value worldwide.
According to data from Emerging Portfolio Research, international money managers, who were pouring each week this year an average $1.6 billion into emerging markets invested only $43 million in the week ending May 17th.
Clearly, at least temporarily, momentum is going the other way which is why you need stop losses in place to lock in your gains.
But this long anticipated pullback may a blessing to global investors since some of the valuations were out of whack. For example, India's SENSEX index was trading at multiples in the high teens.
No doubt the sell offs are leading to some attractive value plays as markets overshoot on the downside. We have identified nine countries that look attractive.
One is Sweden (EWD) with a market trading at less than twelve times earnings.
The Swedish economy is unusually well diversified and fueled by commodities like iron ore and wood, world class companies in telecom (Ericsson), autos, (Volvo) and pharmaceuticals (Astra). Its nine million citizens are renowned for their high educational standards and global outlook. 45% of Sweden's GDP come from exports.
One of the cheapest markets in the world is Thailand with its SET index trading at just over seven.times earnings. With a land area more than twice the size of Wyoming, Thailand is a youthful solid middle-income country with a consumer-oriented middle class. Its economy is well diversified, is rich in natural resources, and has a vibrant manufacturing sector and strong exports.
Admittedly, the political situation in Thailand is murky. The courts have ruled that the April parliamentary elections were invalid and called for the scheduling of new elections. The election commissioners are resisting. The result is political limbo.
But this unfortunate situation will not last forever and the symbolically powerful King of Thailand, Bhumibol Aduljadej who has presided over Thailand since 1946, will likely be forced to actively intervene to end the impasse.
History shows that that the Thai market is both resilient and explosive. Thailand's benchmark index rose 115% in 2003.
I suggest investors use the closed-end Thai Fund (TF) managed by Daiwa Securities which is trading at a 2% discount to its net asset value.
The need for a global perspective in building your portfolio should not be a casualty of the recent sell off in global markets. Hang tough and look for value opportunities as the world continues to fill in.
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