Jordan: Optimism in the Heart of the Middle East
The Dead Sea
We arrived in Amman, Jordan to search for investments. We originally invested in Jordan about 10 years ago, and now with our frontier markets strategies, Jordan is an appropriate place for a revisit. Amman certainly was a changed city since our last visit with many more skyscrapers and visibly newer developments.
Jordan is a modern democratic constitutional monarchy with the King as head of state. It has a highly educated population of about 6.1 million with a growing middle class.[1] The government’s focus has been on economic reform and growth. The role played by a good education system has been significant in the development of Jordan from a predominantly agrarian to an industrialized nation. Jordan’s education system ranks number one in the Arab world, and the country is among the region’s highest spenders on education, investing more than 20% of its GDP in education.[2]
Readers’ Questions Answered II
Hi, I thought your blog was a good opportunity for me to know how the experts think about South Korea’s economy. First, what is your opinion of the Korean shipbuilding industry – will it continue its downfall due to low demand or will it recover in 2010? Second, do you think South Korea’s exit strategy for their expansionary fiscal policy, if implemented, will greatly impact the economy?
- Joshua, South Korea
1. We think that the shipbuilding industry in South Korea has a high level of expertise and technology and they thus will be able to compete in the global market for the time being. However, the Chinese are rapidly catching up in the technology race; by combining their larger market, cheaper and more plentiful labor and improved technology, they may be able to take market share from Korean shipbuilders. I believe the future for Korean shipbuilders will be in very specialized, high-tech ships and by establishing shipbuilding plants in China.
Personal Qualities that are Building Blocks for Good Investing
“The world belongs to optimists; the pessimists are only spectators.” - François Guizot
One of my blog readers is a young university graduate from Hong Kong, who wants to pursue finance and investment as a career. He asked me: “What should I do if I really really want to work in the financial industry? What are the most essential qualities for a young man to succeed in the financial world? Do you have any advice?”
In emerging markets investment, I believe it is necessary to be optimistic. While one can certainly learn numerous technical skills that help in making investments or managing a portfolio, a large percentage of investing is still psychological. Both buyers and sellers act on a combination of instinct, information and logic. The development of certain personal characteristics could play a key role in contributing to your investment success.
Insights from EM Analyst Conference Part II
By Tom Wu, Senior Managing Director, Templeton Asset Management, in Cebu, Philippines
With Tom Wu
Following my colleague’s post on the BRIC economies a couple of weeks ago, it’s worth noting that our global emerging markets strategy includes investments in over 20 emerging economies. As bottom-up investors who look at companies on a stock-by-stock basis, there are opportunities and bargains in many of these markets which might not appear on most investors’ radars.
During the Templeton emerging market team’s conference in Cebu last month, we discussed a number of these opportunities. Today, I’ll focus on two countries – Turkey and Hungary, which we believe are trading at attractive price-to-earnings and price-to-book ratios.
Greece: Opportunities Despite the Challenges
Athens
I recently returned from Athens, where we met with executives of companies in which we first invested many years ago. We started buying stocks on the Athens Stock Exchange when Greece was still considered an emerging market. Since then, it has joined the European Union in 1981, adopted the Euro in 2001, and hosted the Summer Olympic Games in August 2004.
Athens was the only Olympic Games that I ever attended. It was quite thrilling to visit the home of the original Olympics and see records being broken in the swimming events that year. You may remember that this was the first time since 1896 that the Olympics were held in Greece. I remembered that there were doubts as to whether Greece could actually pull off this big expensive event because Athens and the other cities lacked good infrastructure, suffered from air pollution and had many other problems. There were also doubts that the budget of $11 billion could be raised in a country with a population of only 11 million. However, they did it and the Olympic Flame was lit again in Olympia.
Insights from EM Analyst Conference
With Dennis in Sri Lanka
A key component of the Templeton Emerging Markets Team’s investment process is peer review and evaluation. We held our semi-annual group conference last week in Cebu, Philippines. Aside from our weekly review meetings over the phone, this is one of the two times a year when the entire Templeton Emerging Markets investment research team gathers together in the same place to discuss portfolio-related themes, and to assess and evaluate our resources and internal efficiencies. As mentioned, peer review and evaluation is one of the main things we focus during our global gathering.
I’ve asked two of our most experienced and long standing portfolio managers to contribute their thoughts for the next two blogs. Dennis Lim and Tom Wu are both pioneers with the group and started our two largest research offices in Singapore and Hong Kong, respectively.
Unlocking Potential Through Corporate Governance
We are having our global analyst conference this week where members of our portfolio management and research team gather together to discuss emerging trends and challenges.
As many companies now begin their new financial year, I would like to make a case on why improving corporate governance should be at the top of every company’s agenda. One of my readers, James from the UK, recently asked whether corporate governance and transparency is becoming less of an issue, given that he had seen improving standards in emerging markets. I think corporate governance should always be at the top of investors’ minds when they invest in any company, be it in emerging or developed markets. Assuming otherwise might cause an investor to be blindsided, as seen in former U.S. and European corporate scandals.
Sharing Investors’ Queries
I had a busy start to the New Year, catching up with several clients and investors around the world. We discussed some interesting topics that I’d like to share with you here.
Emerging Markets Valuations
Many investors are now concerned about the ‘high’ price/earnings (P/E) ratios in emerging markets given the rally last year. I agree that the P/Es have risen but I think that they have done so from a very low base. We have seen market increases of 80-100% or more from the bottom in many of these markets, but I still don’t think valuations are excessive. Over the years, we have discovered that one of the best single indicators of value is the price-to-book value (P/BV). If you look at average valuations over the last ten years, you will see that the low point was about one time P/BV and at the high was about three times P/BV. We are now about two times P/BV. So in terms of the historical valuations, we appear to be in the middle of the range - not excessive, but not as cheap as we were before. Hence, we are a bit cautious on valuations in some regions like Greater China as well as in general for the emerging market universe.
Reviewing 2009, Looking Forward to 2010
This is my first blog in 2010. As we welcome the New Year during this festive period, it is also a time for reflection…
2009 was an amazing year in the way that emerging markets rose like a phoenix from the ashes. Emerging markets surged in 2009 as a result of many factors, perhaps most significantly the rapid increase in money supply due to global stimulus packages. Solid economic growth, high foreign reserves, low debt-to-GDP ratios, stronger domestic currencies, a rebound in commodity prices, low inflation, low interest rates and investors’ desire for higher gains also supported strong asset flows. In the first 11 months of 2009, emerging markets recorded nearly US$75 billion in net inflows, nearly 40% more than the record-high US$54 billion of net inflows in 2007.[1]
Investment Rules for the New Year
Happy Holidays!
Many of you have asked for pointers on how to invest. Making or preserving money in capital markets is not an easy task, especially in these volatile times. It requires a lot of research, hard work and most important of all, discipline. I hope that you can start your investing year off on a good foot, and so I’d like to share with you a few investment rules I’ve picked up over the years.
1. Diversification. I think that your best strategy to plan against unexpected events such as earthquakes, political upheaval, floods, investor panic and the like, is diversification – not only within a particular market, but also across markets globally. You never want to be overly dependent on the fate of any one stock or security, particularly if you don’t have control over a company’s management or events. Some successful investors with a limited number of holdings believe in the school of thought “put all your eggs in one basket – but watch that basket carefully”. But these investors often have some influence on companies and management. Most investors are not able to do that, and if you fall into the latter category, you may be better off diversifying across countries and companies.
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