Money Matters - Simplified

A Challenge For Individual Investors

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Countries such as Brazil, China, and Indonesia are shifting from export-driven or commodity-powered economies to ones that grow and are sustained through domestic consumption.

Now-a-days,emerging markets have always been a challenge for individual investors.
Countries such as Brazil, China, and Indonesia are shifting from export-driven or commodity-powered economies to ones that grow and are sustained through domestic consumption. Improving credit stories across emerging market economies are a compelling related theme, and can help buffer equity volatility. So that there are many ways to capitalize on the growth of emerging market consumer. For instance, China recently surpassed the US in car market.

For something higher up the risk spectrum, equities of emerging market consumer companies are worth a look. This often requires working with a manager with good local knowledge. Buying a stock index in the emerging world doesn’t always give you exposure to consumer-driven companies. For example, Brazil’s major exchange, the Bovespa, is more than 40% energy and materials, and thus doesn’t capture the forces driving the Brazilian consumer class.It’s also worth looking at emerging-market sovereign and corporate debt.

Since 2007, nearly 100% of the more than 180 sovereign upgrades have been in emerging markets. Many emerging-market companies are in great financial health, too, making their bonds worth a look. That debt often yields a full percentage point above developed-market bonds of similar quality, albeit typically with more volatility.
The mistakes many investors make in emerging markets is they try to time the market; they invest mostly in the largest EM equities; and they do not consider EM debt. Given the volatility — traditionally 50% higher than U.S. equities — deciding when to get in can seem paralyzing.

But for the longer term, a balanced approach that includes a broad spectrum of emerging- and developed-market equities, plus emerging-market debt and currency is a solid way to take advantage of this attractive growth incident.
The technological sector has experienced above-average growth. But still, most market participants think technology companies are fairly valued to cheap relative to prospective earnings. In the case of technology, some of the more compelling pockets of growth are being driven by mega trends such as mobile, cloud computing, data center re-architecture, IT security, and “Big Data.”

Some form of active management with a professional money manager is encouraged. Successful management in the technological sector means spotting emerging trends, understanding which trends are durable, and having a sense of the viability of a company or product.

Managers need to be flexible and cognizant of valuation because some of these stocks can get expensive, and missing earnings expectations coupled with a high multiple stock, can be a toxic combination. Active managers well-versed in the technology space are in a better position to identify when the kind of game-changing moments the tech sector is known for might occur.
Commodities are becoming increasingly supply-constrained in large part because of the demand and growth in the emerging markets.

As China buys more cars, there’s a need for more palladium for catalytic converters and oil for gasoline.

As Brazilians buy houses, they need copper for wiring.

As Indians become wealthier, they eat more sugar-rich products.

Thematic investing means looking at big-picture, secular changes and investing in related assets. The middle-class growth and corresponding consumption story has just begun and has a lot of potential upside. Thematic investing may have volatility along the way. But volatility will make you to bring a commitment in long term relation ship in the equity market.

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