INVESTMENT THESIS
States are beginning to mature from resource- and foreign aid-based economies to ‘middle-income,’ as they transition demand begins to grow in predictable markets such as infrastructure, telecom, automobiles and consumer goods.
Many “emerging middle income” countries have endured strict state controls over the economy, such as Vietnam, Uganda, India… These sectors often are dominated by one or two companies. Well-managed companies will face little competition, particularly when insulated from foreign competition.
A “buy-and-hold” strategy will provide insulation from political and economic fluctuations over time and best take advantage of these growing economies.
Annual growth (after inflation) of these economies approaches and often exceeds 10 percent despite the poor performance of the global economy. Individual sectors have enjoyed much faster growth.
STAGE ONE: LOGISTICS – finding an online brokerage — one with a modest or non-existant annual fee — with access to emerging markets. The best so far is Scottrade which offers ADPs for Mexico, Philippines, South Africa, Thailand and Brazil. Vietnam offers online trading accounts… Another issue is finding index funds that focus on the sector to give me a little bit of insulation and breadth.
THOUGHTS? Please weigh in…
We know that once a nation’s income moves past about U.S. $3,000 or so per capita, but before it reaches somewhere between $18,000 and $25,000, that nation moves into a resource-intensive development phase, building roads, rail, bridges, housing and telecoms on a large scale. Countries in this group accounted for three-quarters of all growth in the world economy over the past five years. Indonesia and India have just entered that middle-income realm. China is a bit further along at $5,000 per capita. Brazil and Russia are at around $10,000. In other words, they all have some ways to run yet.