are emerging markets oversold and is now a good entry point?

frugal90

are emerging markets oversold and might now be a good time to get back in ?

if so what would you buy- an etf/investment trust/unit trust ?

kidmugsy

No one knows.

Anyone who claims to know is a fantasist.

Why are you seeking advice from fantasists?

atush

If you want exposure to emerging markets, then go ahead and invest now, but monthly. That way, you ride the ups and downs more profitably.

Linton

I regard EM as very much a long term play where you are looking for nX100% returns over perhaps 15 years. If that's what you want go for it, timing to gain or lose 10-20% is a minor matter.

billchecker1

I do think that they are a little oversold however I use pound cost averaging to get in.

One investment which I believe to be a good company to put money in is Standard Chartered. No currency risk and has excellent penetration into EM. Has a decent Div and is well placed to take advantage of the increase in wealth. DYOR

billchecker1

PS agree with the poster above. STAN is very much a retirement share for me.

Prudential are also worth looking at.

grey_gym_sock

i wouldn't say STAN has no currency risk (just because its shares are traded in £). its operations are mostly carried out in other currencies, and the profits need to be converted to £ to pay the dividends.

bowlhead99

grey_gym_sock wrote: »

billchecker1 wrote: »

One investment which I believe to be a good company to put money in is Standard Chartered. No currency risk and has excellent penetration into EM

i wouldn't say STAN has no currency risk (just because its shares are traded in £). its operations are mostly carried out in other currencies, and the profits need to be converted to £ to pay the dividends.

Grey gym sock's comment is bang on the money.

The idea that any company both "has no currency risk" "and has excellent penetration into EM" is an oxymoron, because either it is

- operating in those EM countries and earning EM currencies which need to be converted to its home currency at a rate that will vary from time to time, or

- it is selling its product overseas in its home currency and finds its customer appetite will be completely driven by how much it really costs them in their own currencies. Therefore the entire business's fortunes are at risk due to movements in exchange rates.

A targeted reply to billchecker1:

Based on previous posts, you and your wife are policeman and teacher respectively, living in the UK, small student loan, saving for a house, got a mortgage approved etc etc. The United Kingdom is the primary economic environment in which you live your lives and spend the pounds sterling that you have earned from your jobs on your pounds sterling denominated loans, credit cards, mortgage, living expenses etc.

Standard Chartered is an international emerging-markets-focused bank which produces financial statements for its shareholders showing (at last year end) its $636 billion dollars of assets financed by liabilities of $590 billion and shareholders' equity of $46 billion.

If you look at some of those assets to see what they are, you'll see they include a consumer banking loan portfolio of $133 billion, of which less than $4 billion was located in the Americas, UK & Europe (so almost $130 billion was not), and a wholesale banking loan portfolio of some $157 billion of which $47 billion was located in the Americas, UK and Europe and the other hundred billion plus was not.

The vast majority of the loans and other assets are in HK, Singapore, Korea, India, Africa, Middle East and other South Asian/ Asia Pacific countries. Zero percent of them (or close to it) of those non-UK loans will be made in pounds sterling. Now clearly many of those loans will be financed by customer deposits (again, most of which won't be located in UK, Europe or US) or by loans from other financial entities (same).

So there is a natural currency hedge. Still, they do have structural foreign exchange exposures, net of hedges, and show these in a table in their accounts. There's $6bn+ of net exposure to the HK dollar and to the Korean Won, $4bn+ to the indian rupee, $3bn to taiwan dollar, $1-2bn to each of the renminbi, the baht, the singapore dollar, the UAE dirham, the rupiah, etc etc etc. So on $46bn of net assets they can list over $33bn of foreign currency exposure. And this is all against the USD (the currency in which they prepare their accounts for their international shareholder base). GBP doesn't even get a mention because they have so little of it.

The idea that you can buy a share priced in pounds and sell a share priced in pounds later and get away without worrying about currency risk, is ludicrous. The company could make zero changes in its business but one day sterling strengthens, and all of a sudden the share trades at 5% less because the chinese and korean and african assets aren't worth as many pounds even though they are the exact same assets.

Look at it another way. Owning a share in a business entitles you to its assets (discussed above) and, often more importantly, to its future income which will either be distributed to you as dividends or used to buy more assets to develop the business in which you own a share.

In 2012, its operating profit before impairments and taxation was $7.7bn. Of this, $3bn came from its operations in Hong Kong, a billion from Singapore, a billion from India, etc. In splitting its operating income up by geography, the smallest segment was Africa. But after operating expenses were considered, the net operating profit in Africa was still 75% higher than the Americas, UK and Europe put together, which in fact only produced $378m net profit out of the $7.7bn total mentioned above.

My contention would be that if you are invested in a business that has over 95% of its net income coming in foreign currencies from somewhere other than the Americas, UK and Europe - the largest producers of the products you typically spend your money on - you cannot possibly go round saying there is no currency risk to the value, growth, or income you are going to get from your share in STAN. Actually, you have it coming out of your ears.

As a side note, there is absolutely nothing wrong with having assets whose income streams are denominated in Korean Won or Taiwan Dollars, because over the course of your life you will buy a certain number of TVs or smartphones or washing machines or cars or whatever, whose price is entirely or partially driven by manufacturing and design costs incurred in those currencies. So it's good to have earnings in those currencies which move in sync, and STAN's earnings are certainly well diversified amongst Asian and EM currencies. And of course emerging economies grow faster than the developed ones (although everyone knows this, so the reward/risk ratio won't necessarily be any better than other places).

But I think it unlikely that your personal split of expenses and liabilities at any point in your life will match exactly to the split of STAN's income and assets. Therefore, your currency exposure is not insignificant, it might well be tremendous. Which is why you would hold it as part of a much wider portfolio. The portfolio could have a suitable level of underlying currency risk matching your goals and future spending habits... but the individual bank share? Nope.

Glen_Clark

frugal90 wrote: »

are emerging markets oversold and might now be a good time to get back in ?

if so what would you buy- an etf/investment trust/unit trust ?

I have recently put 4% in an EM Investment trust just for diversity (which is now up slightly) Whether its a good time I don't know, but I do know it depends how much more money the US and UK are going to print. All that freshly printed funny money has to go somewhere, it obviously isn't going into British Industry, so what doesn't go towards pumping up house prices goes abroad. The reason EM share prices have fallen of late is that the US printing presses might be slowed down.

Glen_Clark

kidmugsy wrote: »

No one knows.

.......unless they have inside information on how much more QE there is going to be

billchecker1

Wow@ bowlhead99

Thanks for the detailed answer. Clearly you are right and my lack of knowledge in this area has been corrected.

STAN is very much part of a balanced portfolio for me and arguably this is one of my more riskier shares. I am happy to hold for a significant period of time but do agree that funds/ETF give someone immediate diversification.