Where the growth will be
Now contrast this picture with the story at the emerging-emerging economies. It's not so much that growth in these countries is stronger than among the BRIC economies, but that there's good reason to believe that the trajectory is higher rather than lower.
Indonesia's growth slowed to 6.23% in 2012 from 6.5% in 2011. Growth in the core consumer sector remained a strong 5.75%. And the country's central bank has plenty of room to cut interest rates if it needs to prop up growth with its benchmark rate at a historic low of 5.75%.
Mexico is a direct beneficiary of the strength of the U.S. economy because the country has been picking up manufacturing business from China on cost and proximity to the U.S. market. The World Bank projects growth to drop to 3.5% in 2013, from 3.9% in 2012, but then to recover in 2014 with help from U.S. growth and reforms that will open up Mexico's oil and media sectors to new competition.
The financial direction of these countries is exactly the opposite of that of the BRICS. In the same week that Fitch downgraded China, Standard & Poor's upgraded Colombia to its lowest investment grade, BBB. In March, Standard & Poor's revised its credit outlook on Mexico, suggesting that the country could get an upgrade from its current BBB rating in the next few months. And also in March, Standard & Poor's upgraded Turkey to BB+ from BB, leaving the country one step below investment grade.
In absolute terms, countries like Mexico and Turkey and Colombia may not have stronger economies than those of Brazil or China, (and they're certainly not as big). But in relative terms they are on an upswing while the BRIC countries seem like they've run head-on into problems.
Making the moves
So what do you do as an investor?
First, I think you need to recognize that this sentiment -- BRICs no, emerging-emerging yes -- won't last forever. All it really needs to turn around is better news from China that would revive dreams of more robust commodity growth. That would give a huge boost to China, Brazil, and Russia at the least.
Second, however, you need to recognize that, at the moment, sentiment is running very strongly toward emerging-emerging markets over the BRICS. A recent survey by The Economist of 700 investors and executives gave first place among markets likely to offer the best returns in the next year to the United States. China, last year's top pick, dropped to No. 2. Russia took a big tumble to rank behind Japan. Southeast Asian economies as a group took over the No. 3 slot from Brazil. Brazil's percentage ranking in the survey fell to 31% in 2013 from 35% in 2013. India's tumbled to 31% from 48%. Latin America's moved up to 21% from 19%.
You should also note that a large percentage of respondents to the survey worried that emerging-emerging markets were getting overheated.
Third, because that fear of overheating is real and because a slowdown in China will lead to a slowdown in export sectors in all global economies, I'd stick with domestically oriented companies in BRIC and emerging-emerging markets.
That makes your stock-picking task harder, since most of the BRIC and emerging-emerging market stocks we're familiar with are large exporters such as Brazil's iron ore giant Vale (VALE). So you have to do some deep digging to come up with domestic emerging-emerging market stocks that you have any shot at buying in New York as ADRs (American Depositary Receipts) that trade with reasonable volume.
5 to run with
Let me give you five: four you can buy in New York and one that trades only in local markets, but that I think you'll be able to buy it through the international desk at most brokers.
From Mexico I'd suggest Grupo Televisa (TV), which looks like it has dodged the worst damage in the proposed reform of Mexico's very concentrated media sector.
From Panama, but actually from all of Latin America, I'd suggest Copa (CPA), an airline that flies throughout Central and Latin America and to the United States via a sharing agreement with United Airlines, a subsidiary United Continental Holdings (UAL).
From Japan, but actually from all over Southeast Asia, I'd suggest Seven & I (SVNDF). The owner of the global 7-Eleven empire, the company has 46,600 stores worldwide, but only 15,600 of those are in Japan. The company also operates 1,351 stores in Mexico, 6.296 in Thailand, 1,328 in Malaysia, 689 in the Philippines, 57 in Indonesia, and 561 in Singapore. (Note that it trades with better volume in Japan as 3382.JP.)
From Singapore, I'd suggest Singapore Telecommunications (SGAPY). Singapore is in the midst of a huge build-out of its high speed network and that means lots of new traffic even for incumbents such as Singapore Telecommunications. The stock does yield almost 3.7% (and Singapore does not have a withholding tax on dividends for overseas investors).
And finally from Singapore, but really for all of Southeast Asia, I'd suggest the Singapore Stock Exchange, trading there as SGX.SP. Singapore is going to win a share of financial traffic that will move from New York, London and Tokyo in the next decades. And the city-state does have some significant advantages over Shanghai and Hong Kong that will make this a viable alternative market.
These five picks certainly don't exhaust the emerging-emerging universe. But they should be enough to get you started and suggest directions for your own research.
Updates to Jubak's Picks
These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios.
- Apple's new reality: Stock tied to product cycles
- Citigroup has some upside for investors
- Alcoa's success shines light on Toray
- The yen falls again
- Exide rebounds despite debt concerns
At the time of publication, Jim Jubak did not own or control shares of any company or fund mentioned in this column in his personal portfolio. When in 2010 he started the mutual fund he manages, Jubak Global Equity Fund (JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund did own positions in Copa, Grupo Televiso, Seven & I and Singapore Stock Exchange as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund's portfolio.
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The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.
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