Look beyond China and India for juicy growth prospects.
As we've discovered in recent years, the US economy isn't the only game in town. China and India have also taken a seat at the top table. These emerging giants have attracted most of the fuss and fanfare, and understandably so, but again, they're not the only emerging markets in town. And they may not be the most rewarding either.
China crisis?
China is applying the brakes, as its key inflation figure hit 4.4% in October, up from 3.6% in September. This is the fastest rate of increase for two years, and adds to fear of a bubble, as the authorities battle to keep a lid on spiralling consumer prices and housing costs.
The People's Bank of China raised interest rates by 0.25 percentage points last month and more hikes could follow. It is also tightening liquidity by demanding banks set aside higher reserves. No wonder the Chinese are unhappy at Federal Reserve plans for more quantitative easing, worrying that this hot money will hamper its attempts to cool their economy.
Some are losing faith in China. Stuart Fowler, director of investment at wealth manager No Monkey Business, believes the Chinese market has already "imploded", with share prices now standing at a massive premium to their asset value. Anybody investing in Anthony Bolton's Fidelity China Special Situations (LSE: FCSS) new share issue is therefore paying "a premium on that premium", he says.
Asia is so last year
If not China, then who?
There are plenty more countries enjoying high quality and sustainable growth, with young and expanding populations, according to comments from Dean Newman, head of emerging markets at Invesco Perpetual.
We know two of his favourite growth stories pretty well by now well: Brazil and Russia. But there are a couple of surprises that could add a bit of colour to a more aggressive portfolio: Colombia and Turkey.
Brazilian flare
Personally, I've been concerned about Brazil lately. It seems likely to be one of the main homes for the Fed's latest flush of liquidity, thanks to its relatively high interest rates, as the carry trade jets off to Rio for yields of more than 8%.
Newman isn't worried. He believes economic and corporate growth prospects in Latin America are excellent.
Brazil is the largest economy in the region, and set for GDP growth close to 8% this year. It's no longer just about natural resources, but with a growing middle class, domestic consumption is rising. Rising incomes and easier access to credit will also help the consumer sector take off. And the benefits will be felt beyond Rio and São Paulo. The country is treading on a modest P/E of 12.2.
Colombia market
Here's one country that is much less likely to be on your radar screen, or in your portfolio. Or figuring highly in your holiday plans, for that matter. Colombia.
Newman says the country's security situation has vastly improved in recent years, although my Colombian friend who recently came back from Bogota says life is still a bit extreme over there.
Colombia has just won a seat on the UN Security Council, which should raise its international profile, and the country's government is more pro-US and pro-market than most in the region, and boasts a buoyant oil and gas sector.
The US-listed Global X/InterBolsa FTSE Colombia 20 ETF (GXG) has had a crazy year, thanks to stellar returns from some of its top holdings, including Ecopetrol and BanColombia.
Again, I'm more sceptical, because I hate investing on the back of shoot-the-lights-outperformance, because you often end up ducking the bullets as they fall back to earth.
The Colombian peso has also grown strongly against the dollar (mind you, which currency hasn't?). The market is also trading on a high P/E of 21.7.
Russian doll
Russia, we know about.
Unlike many emerging countries, its inflation rate is actually falling, which has allowed it to continue cutting interest rates during 2010. GDP growth this year should be 4%. As in Brazil, a more educated and middle-class population is earning and consuming more, and of course it has all that oil and gas.
Newman claims Russia is still undervalued and underappreciated, and is the cheapest equity market in the worldwide now, despite having one of the highest consensus expected earnings growth for next year. Russia is trading on a P/E of 9.5.
Talking Turkey
Turkey you may know less about. You may not even know that annualised GDP growth is outstripping China, notching up 10.3% in the second quarter. Private consumption should keep that buoyant.
Political uncertainty has eased following last month's referendum, which backed the government's package of constitutional amendments, and the long-term prospects seem positive. Turkey is trading at a P/E of 13.6.
If you're happy to take a chance that booming Turkey will remain a politically stable bridge between Europe and Asia, you might consider iShares MSCI Turkey (LSE: ITKY), which is up 27% over the last three months, 56% over 12 months, and 53% over three years.
Flight to risk
You don't need me to point out that you're taking a chance by investing in any of these markets. Who knows how long the party will keep on rolling? But it is certainly worth looking for emerging market opportunities beyond China and India.
And of course the West, with all its worries.
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