But don't forget the BRICS
Does this mean that I'd recommend ignoring the BRICS right now? Not entirely, but I would concentrate on the two most promising BRICS and leave Russia, South Africa and India underrepresented in my portfolio until these countries work through their current near-crisis economic problems.
In Brazil and China, for long-term bets I'd concentrate on domestic companies, rather than exporters (good for short-term rallies, in my opinion) because they are best positioned to take advantage of the huge and expanding consumer markets in those two countries. In China, that means companies such as Internet giant Tencent (TCEHY) and insurer Ping An Insurance (PNGAY).
Right now, I find Brazil more interesting from a long-term perspective than China. Maybe China's new leadership will tackle the huge problems of corruption, a lack of an effective legal system for property rights and an absence of any effective check on state economic power, but I have my doubts. Changes in those areas are necessary if China's economy is to take the next step of development. Without them, I think China risks getting trapped in a global role of a manufacturer -- perhaps an increasingly advanced manufacturer -- of goods for companies from other economies.
Brazil seems -- and I stress "seems" -- to recognize this challenge and to be making an effort to differentiate itself from its big BRICS trading partner and competitor. Not only does the administration of President Dilma Rousseff seem intent on breaking Brazil's long history of double-digit interest rates, but it also seems determined to at least start tackling Brazil's deep-seated tradition of the rich and powerful flouting the law. (I don't mean that flouting the law doesn't happen everywhere. It's just a matter of degree, and degree is important.)
In the current Banco Cruzeiro do Sul fraud trial, for example, the police are actually investigating the former owners of the midsized bank. Two of the accused are in jail without bail -- not exactly common in trials of the connected in Brazil. This comes after the Supreme Court has convicted some of the country's most senior former politicians of corruption and vote buying. The two cases have led some in Brazil to believe that the culture is changing. If so, that would be a big deal for Brazil and its journey to join the ranks of the world's developed economies.
My favorites in Brazil are private education companies Kroton Educacional (KROT11.BZ in São Paulo) and Anhanguera Educacional (AEDU3.BZ ), and Natura Cosmeticos (NATU3.BZ ), Latin America's largest cosmetics company.
Many of the stocks I have mentioned don't trade in New York, or don't trade in volumes that make exits and entrances cheap or easy. I think that's partly a reflection of a world where national companies in emerging economies are more comfortable and more able to raise money in local financial markets. U.S.-based brokers, in response, are increasingly offering their account holders the power to trade in local markets. Charles Schwab (SCHW), for example, just added trading in a dozen local markets to its list of services. These days, if you see a stock you like, it never hurts to ask if you can buy it in its local market.
Updates to Jubak's Picks
These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios:
- Western Gas is too expensive
- China's growth picks up
- Why Yamana shares are soaring
- Signs of trouble for Apple?
- Why Costco shares could hit $110
- Freeport-McMoRan's solid quarter
- Abbott, Bristol-Myers race for hepatitis cure
- Banking investors cheer Citigroup results
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. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. As of the end of September, the fund owned shares in Anadolu Efes Biracilik Ve Malt Sanayi, Banco Santander, CorpBanca, Industrias Bachoco, Kroton Educacional, Natura Cosmeticos, Ping An Insurance and Tencent. Find full list of the stocks in the fund as of the end of September here.
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