I was invited to attend the wedding of one of our Romanian staff in June, and I jumped at the opportunity to celebrate with the happy couple, visit a different part of Romania, and talk to locals about life there. The celebration represented a microcosm of the juxtaposition of old and new in Romania, and this is similar for investors there as progress continues toward market reform.
The “year of the dragon” in 2012 certainly didn’t disappoint, as the global markets battled one financial dragon after another. From the Eurozone’s sovereign debt crisis to persistently high unemployment in the U.S. and a mayday call from many who worried that China’s growth rate was headed for a “hard landing,” 2012 certainly was interesting. As we turn the calendar page to 2013, the Eurozone seems to be in less-critical condition and China’s economic growth still appears to be flying but as of this writing, the U.S. debt problems still haven’t been solved. From my vantage point, the uncertainties surrounding the U.S. economy may just be the tip of the iceberg, threatening the global economy in the coming year. Nevertheless, with every new dire warning of economic disaster the global equity markets generally continued to power away in 2012. Read more…
Whether our neighbors are as close as the airplane seat next to us or across a national border, most would probably agree that while we may not see eye to eye, peaceful cooperation makes more sense than tense relations. China and Russia share some 4,000 kilometers of common border, and their neighborly relationship has certainly had some ups and downs. But it’s clear to me that the opportunities for cooperation between these two nations have enormous potential mutual benefits, particularly in the trade of natural resources.
Bordering the Black Sea in Southeastern Europe, Romania offers visitors a variety of beautiful and dramatic landscapes concentrated in a relatively small land area, including modern cities and medieval villages, sweeping mountain vistas, broad plains and sandy beaches. Romania may also be one of the more attractive investment destinations in emerging Europe today, but its political environment has been characterized by some power struggles as dramatic as its scenic views. The most recent political turbulence in Romania provides an example of how politics and power struggles can thwart economic progress, but now that some of the political uncertainty has been removed, I believe Romania should be able to move forward in a productive way. Read more…
The picture postcard image many Western travelers may have of China’s city streets is one besieged with bicycles and empty of cars, but China is no longer pedaling its way into the future—it’s firmly in the driver’s seat as autos rapidly replace human-powered transit. Motor vehicle sales have been booming in China, a reflection of the growing middle class. In 2009, car sales (by volume) in China exceeded those in the United States, and in 2011, China led world auto production at 18.4 million units.1 Consumer demand continues to power sales of both domestic and foreign brands in China. In May 2012, vehicle sales in China surpassed 1.6 million units, rising 16% on a year-over-year basis, compared with just over 1.3 million units sold in the U.S.2 While overall growth may have been slowing in China this year, solid sales of durables like cars provide evidence its consumers remain a powerful global economic force. Read more…
Myanmar, once known as Burma, has democracy standing on its doorstep.
For decades under Myanmar’s former military regime, Aung San Suu Kyi led the fight for democracy as head of the National League for Democracy (NLD). A Nobel peace laureate, she retained her popular appeal over two decades while she was either imprisoned or under house arrest. Now free, on April 1, 2012 she won a landslide victory in Myanmar’s parliamentary by-elections. Drawing cheering crowds, her supporters call her “Amay Suu,” or “Mother Suu.” Hopes are high she will nurture this formerly troubled nation into a new era of democracy and personal freedom.
In 2011, perceptions regarding the composition of the global economy underwent a shift—instead of the U.S. being considered as the world’s key growth engine, investors began to realize that large emerging economies such as China and India were increasing their contribution to global GDP. While the U.S. saw its long-term credit rating downgraded in August and the eurozone was the center of heightened worries about sovereign debt for much of the year, some emerging economies witnessed positive growth in 2011.
That is not to say there were not challenges. As most developed nations continued to implement very loose monetary policy measures, washing much of the global financial system with liquidity, many emerging countries had to reckon with higher prices for goods and services, appreciating currencies and, in some cases, “imported” inflation. In their fight against high inflation, several emerging-market central banks embarked on tightening monetary policies for much of the year, which led to investors worrying about the prospects for economic growth. Indeed, the high-growth economies of China and other emerging Asian and Latin American countries lost some momentum as the year wore on, but to us they now appear poised for softer landings than their developed-market counterparts.
The death of North Korean leader Kim Jong-il on December 17, 2011, escalated the uncertainty surrounding the regime change in Korea, which was preparing for a leadership transition in 2012. Very little is known about Kim Jong-un, the young man who is taking on the role of dynastic head. Some analysts feel that the death of Kim Jong-il sharply increases the risks and uncertainties from the secretive Pyongyang regime, which has significant consequences for security on the Korean peninsula and beyond. South Korea and Japan are most immediately threatened, but China and the U.S. are also deeply involved with vital stakes in North Korea’s future.
We believe Kim Jong-un, being untried and young, may not be entrusted with the power his father had, at least initially, and there is a chance that he will be affected by the rest of the Kim family. We think there is a potential risk that the regime may undertake some type of military activity or nuclear tests in an effort by the new leadership to demonstrate to the outside world that there has been no regime policy change, internal strife or reunification with the south.
This week I’ve joined forces with Dr. Michael Hasenstab, co-director of Franklin Templeton Fixed Income Group’s international bond department, to bring you our joint perspectives on emerging markets: where they have been, where they are now, and where we believe they are headed.
I invite you to read “Emerging Markets: Yesterday, Today and Tomorrow” at Beyond Bulls & Bears, which hosts perspectives from many of my fellow portfolio managers.
I’ll be back on this blog in the next week or so with my 2011 year in review and outlook for 2012.
Hello readers, thank you for your patience while I was away from this space for a few weeks. We continue to see quite a lot of market volatility, but of course we consider these to be times of opportunity in our ongoing hunt for attractive investments, and we have been pounding the pavement to look for bargains. Here’s a note from a recent visit.
What country is the world’s largest producer of petroleum? No, it’s not Saudi Arabia but Russia. Oil and gas are important to Russia’s economy, as are a whole host of natural resources such as nickel, palladium, diamonds, etc. Because of what have been higher commodity prices, Russia’s economy is growing at a fast pace (it is projected by IMF to grow 4.3% this year), interest rates have come down from their peak in 2008, unemployment is lower, foreign reserves have risen to over US$500 billion as at July 2011, and Russian equity markets have generally done well since 2008, even considering recent declines. That is why we have been to date interested in Russian oil companies. For this reason, I launched a trip to the Caspian Sea to see first-hand how oil drilling and production operations worked on an offshore oil rig. Read more…