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Wills

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This thread will have a regular update.

Purpose of this thread is to post important news regarding our Economy that will help your conviction.


Feel free to criticise or debate!
« Last Edit: Aug 21, 2013, 04:54 PM by Wills »


Wills

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Reply #1 on: Aug 21, 2013, 04:33 PM
   

 
The economic footprint of BPO industry

By Roberto R. Romulo (The Philippine Star) | Updated August 21, 2013 - 12:00am

The Business Process Outsourcing Industry has come a long way since I first espoused the merits of this global business phenomenon in 2001, helping position the country, in collaboration with the early movers of BPO, by setting up Outsource Philippines and doing road shows all over the US and the UK. It was a big bet for investors to come to the Philippines back in those days.

How things have changed. Just over a decade later, we’ve seen the exponential growth of this sector, making it one of the chief economic drivers in this country, currently employing 770,000 people with total revenue expected to reach $6 billion. Today, the Philippines is the world’s leading call center destination, beating out India, while Manila was just named the world’s 3rd top BPO destination, according to a Tholons 2013 Survey1.

After growing 20 percent in 2012, the BPO industry of the Philippines is estimated to hit revenues up to $25 billion by 2016. By these estimates, according to the Information Technology and Business Processing Association of the Philippines (IBPAP), the Philippine’s BPO industry will account for approximately 10 percent of the nation’s GDP directly employing 1.3 million Filipinos and 3.2 million more in indirect employment. In fact, the BPO industry is the second largest source of foreign exchange in the Philippines, just after remittances, which currently contribute 10 percent to the country’s GDP. 2

Just like the tourism sector, the multiplier effect that goes hand in hand with the BPO industry should be closely looked at in view of the various ancillary industries that accompany this sector, which as a whole, contribute to exponential growth to the total Philippine economy.

What’s the multiplier effect? The BPO industry contributes to real consumption, which is what pump primes an economy, from transportation services and hospitality services to food, communications and entertainment.

More importantly, the taxes the country collects from the BPO industry is significant. According to The Everest Group, this translates to $33-billion revenue through 2016, translating to four percent percentage points in market share, giving the Philippines a solid 10-percent global market share in the BPO space. This means an incremental three billion in taxes on wages – $1.2-billion tax on wages from direct employment and $1.8-billion taxes on wages on indirect employment.


 
I was blown away by the numbers that I was driven to see for myself this phenomenon. I visited two BPO operations: the first was a CAPTIVE type, meaning they provided services exclusively for their own multinational operations. The other was called GLOBAL since they marketed their services to others in the competitive global outsource market. Because this is a highly competitive industry, I decided not to identify them.

CAPTIVE - This BPO operation has a headcount of less than 5,000 and has been in operation for more than a decade.  Lately they have been expanding at 500 per year.  The typical  profile of their employees are college graduates with both verbal and written English capability, computer skills, energetic and focused on building a career within the company.  This company offers staff the opportunity to either build a global career locally or abroad in 70 different locations.  Information indicates that 50 employees are now permanently stationed abroad (US, Singapore and the Middle East).

1 http://www.rappler.com/business/20810-manila-world-s-3rd-top-bpo-destina...

2 http://investvine.com/philippine-bpo-industry-to-hit-25b/

Their human resource development policies are highly advanced and not typically provided in other industries. . Employees are provided a career plan and a career coach is assigned to them.  Training is offered to all either in-house or outsourced classroom style. They are provided on-line training (with over 1000 courses available) which can be accessed during office hours. The company was rolling out a significantly improved benefits package (covering health insurance, pay etc), based on market surveys as well as employee feedback. Compensation is reviewed for market competitiveness annually and employees are provided with full transparency on their compensation relative to their peers and the market data.

This company prides itself in sustained compliance with national and LGU regulations. It goes out of its way to educate everyone on their rights as well as grievance procedures.  Each location is equipped with Emergency Response and Disaster Recovery teams, social and activities space, pantries, nurses, sleeping room and the like to ensure a safe and enjoyable workplace. Safety briefing and drills take place on a regular basis to ensure readiness for the worst eventuality.  In terms of Corporate and Social Responsibility, they support Habitat for Humanity and staff are encouraged to participate in charitable activities.

It is significant to note that their annual attrition rate was between 10-20 percent which is low compared to the average BPO which I understand can be as high as 80 percent.

GLOBAL – This organization has a headcount of more than 10,000.  A college degree was originally a requirement but they have lowered it to at least two years in college for some positions.They welcome OFWs and retirees /senior citizens.  They pride themselves in providing career opportunities within the company indicating a career track from agent to team leader, to operations manager to senior manager for operations and to director for operations. They invest millions of US dollars in training and development.  Training is done in their multiple work sites located in various parts of the Philippines. All employees undergo training on their Integrity, Code of Business Conduct and Corporate Security.  Other courses are for agents on culture and communications as well as program specific training. Supervisor levels and up are given management development programs. 

There are numerous employee engagement programs ranging from first aid and fire safety seminars, to free spa sessions and urban self–defense. In terms of health and safety and legislative compliance, their practice is exemplary: regular fire drills, lactation rooms for mothers per site, shuttle service during typhoons and other calamities, sleeping quarters for males and females per site, on site-clinic with nurses on duty from 8-24 hours per day, and on site physicians per week with specializations based on the recurring illnesses per site.

Their other benefits: full HMO coverage, medicine reimbursement, life insurance, rice, transportation, meal and communication allowances, annual merit increases and performance bonuses.

Senate Bill 57

I understand there is a pending bill in the Senate to provide protection of workers in the call center industry.  I am not convinced that this will do more good than harm to an industry that already provide benefits to their employees beyond what the law mandates and quite frankly, better than most local companies. As the law stands today, the right to organize and join labor organizations is already in effect and enforced by the Department of Labor and Employment (DOLE).

One of the executives whom I met commented: “With existing regulations in place and the highly competitive nature of the BPO industry, unionization is not required to ensure that there is fair treatment for employees in the industry.  With multi-national companies providing our Filipino employees with lucrative salaries, benefits and well-being, making significant investments in their post-university training (often exceeding US$5,000 per employee), paying diligently on their taxes, and then only to be tackling as high as 80 percent attrition and continual wage inflation demands of these employees; perhaps the Senate should rethink their desire for increased protection. Employees have many, many choices and the companies that treat their staff well will prevail while continuing to build a significant industry for the Philippines”.

Economic Impact

Let me revisit my earlier discussion on the significant economic footprint of the BPO industry to the country, reinforcing what this BPO executive has just mentioned. According to a presentation by Dr. Alvin Culaba on the 2nd FGD on BPO Innovation and Competitiveness3, he cited the NSO computing a larger multiplier effect through consumption via direct employment in the BPO industry by 2016. The BPO industry’s contribution to this country’s economy cannot be compromised, as the figures below are quite staggering:

- Php 232.7 billion in VAT contribution for food purchases

- Php 73.7 billion in housing rental

- Php 45.4 billion in public transportation and mobile communications costs

- Php 22.5 billion in clothing costs

- Php 80 billion in savings/investments

- Php110 billion in taxes that could go to cover public services equivalent to 300,000 classrooms and 3.2 million families receiving maximum Conditional Cash Transfer (CCT) for a year.

I respectfully suggest that the Senate send a committee to pay a visit to BPO sites as I described before they deliberate further on this proposed legislation. We have to be careful that our concerns are well-founded or else we may end up choking the goose that continues to lay golden eggs. With global BPO business estimated to more than double from 2010 to 2016, we cannot afford to be cavalier about this issue. There are many competitors lurking out there ready to take away the business from the Philippines now poised to be the world’s number one provider; as has been seen over the last 5 years with India moving downwards in the world’s ranking.


Wills

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Reply #2 on: Aug 21, 2013, 04:38 PM

Phl regaining growth momentum

MANILA, Philippines - The Philippines is on the verge of regaining decades lost to slow growth, thanks to government efforts to instill confidence that have kept the country on the investors’ radar even amid financial volatility.

“The restoration of macroeconomic balance has helped insulate domestic conditions from recurring global financial turmoil and volatile capital flows,” the Institute of International Finance (IIF) said in a report.

 “The key issue for the near-term outlook is maintaining macroeconomic stability. The strong growth at the turn of the year was not a transitory phenomenon, but evidence that the economy was regaining momentum,” it added.

IIF – a group of global financial institutions – noted the Philippine economy could surprise with a 7.5-percent growth this year, faster than last year’s 6.8 percent, following the first-quarter uptick of 7.8 percent.

Part of the reason for the sterling performance, the group said, was the Philippines’ “rising global prominence” hinged on the Aquino administration’s budget discipline and improving public governance.

As of the first semester, the budget deficit was at P51.29 billion, far below the period’s cap of P84.656 billion, putting the government “on track” at containing the gap between revenues and spending at 2.1 percent of economic output.

 
Debt levels have also been declining, the IIF said, noting that the debt ratio of 49 percent as of the first quarter was significantly down from its peak of 74 percent in 2004. The government targets a ratio of 44 percent this year.

“The long and difficult progress made by the government in restoring fiscal control, maintaining macroeconomic balance and strengthening public governance is paying off,” the IIF pointed out.

In addition, the Bangko Sentral ng Pilipinas’ record of keeping inflation at “historically low” level of 2.9 percent as of July, boosted reserves at $82.9 billion and “structural current account surplus,” is also noteworthy.

Partly due to cuts made on special deposit account rates, money supply, which grew 20.3 percent as of June, has been “robust,” helping support economic activity, at the time foreign investors globally were returning to the US on signs of recovery.

“While robust recent expansion in liquidity raises concerns about the potential for the economy to overheat, it is important to emphasize the economy is not overheating at present,” the IIF said.


bauer

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Reply #3 on: Aug 21, 2013, 05:10 PM
As of the first semester, the budget deficit was at P51.29 billion, far below the period’s cap of P84.656 billion, putting the government “on track” at containing the gap between revenues and spending at 2.1 percent of economic output.
 
Debt levels have also been declining, the IIF said, noting that the debt ratio of 49 percent as of the first quarter was significantly down from its peak of 74 percent in 2004. The government targets a ratio of 44 percent this year.
 

The debt ratio is a misleading indicator of the country's true progress.  It is one of the reason that we could not understand why poor people are growing in numbers even though our country is showing a very good GDP numbers in the past few years.

If our country's growth is faster THAN the growth of our DEBT, definitely the debt ratio will decrease.  It is good in the eyes of the economic managers but it does not MEAN anything for the general public.  Also, it doesn't mean that we are reducing our debt.  In fact, we have more than 120 BILLION DOLLARS PLUS in government debt.  It does not even include the level of corporate debt and consumer debt or the private sector debt (but at least crude data shows it is much lower than the public debt).

The private productive citizens of this country is leading the way to progress and our OWN government has been laying out obstacles after obstacles in attaining a progressive status in income and living condition.  The only positive actions of our government is providing freedom to us but justice and meritocracy is another issue.

I am not against DEBT but loans should be use wisely and efficiently so it will produce tangible positive results.  Look at China, they spend heavily on infrastructure but there are so many ghost cities.  spending without thinking of efficiency and absorptive capacity of the system.  even though, it is still a catalyst of growth given time to expand.

In our case, we incur debt, we do not spend it wisely. we utilize it poorly.  we do not distribute it evenly and fairly.  This is all due to lack of planning and expertise. 

Planning can be solve by electing and appointing people with moral righteousness and technical skills.
Expertise can be solve by electing and appointing people with high standard of pay and rewards without asking them for donations and favors.

In other words, we need a MERITOCRACY GOVERNMENT.
« Last Edit: Aug 21, 2013, 05:11 PM by bauer »


Wills

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Bauer,

Thank you for your input, it's very clear.


oripsaluk

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It is all about massive corruption from the smallest political sector up to the top governments posts..... :boxing: :boxing: :boxing:


Wills

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The tale of the taper

PHILEQUITY CORNER By Valentino Sy (The Philippine Star) | Updated July 22, 2013 - 12:00am
 

Last May 22, Fed chairman Ben Bernanke fired a hawkish statement that was heard around the world. He said, “In the next few meetings, we could take a step down in our pace of purchases.” With this, Bernanke hinted about what possibly was the beginning of the end of the Fed’s unconventional monetary policy known as quantitative easing (QE). This statement triggered a vicious global correction that was felt not only in stocks, but also in bonds and currencies.

The end of the Bernanke put?

The phrase “Bernanke Put” is something that has been associated with aggressive monetary policy easing. A put is an option contract that binds parties to exchange an asset at a predetermined price at some point in the future.

By keeping interest rates low, monetary policy easing essentially drives investors out of less risky and low-yielding assets and forces them into riskier assets like stocks. The policymakers want to create a “wealth effect” through rising stock and home prices. The goal is to inspire business and consumer confidence that would lead to increased economic activity.

Since monetary policy easing drives stock prices higher, the Fed’s QE has practically placed a floor on stock prices. Investors view this as a free put or assurance from Bernanke, since they can buy stocks now and sell them at higher prices at some future date. This is why the Fed’s QE program has been referred to as the “Bernanke Put.”

Global equity investors have been fortunate because global central banks followed Bernanke’s lead (The Great Global Monetary Easing, Oct. 22, 2012). Dubbed as the “Great Global Monetary Easing”, the concerted effort of global central banks gave rise to a global bull market in stocks (Global Bull Market, Jan. 7, 2013). Because QE triggered a different level of risk-taking, the hints of a possible policy reversal called for a serious strategy reevaluation for investors.


 
The tapering of money printing

What Bernanke hinted about last May 22 was the possible start of QE tapering. This refers to the gradual reduction in the Fed’s monthly bond purchases or liquidity injections into the economy. Bernanke said that the Fed might slow down on its bond purchases if it sees a sustained improvement in economic conditions. QE tapering will be necessary if the US economy shows a clear path to sustainable growth. However, if economic growth appears weak and inconsistent, the Fed may keep its loose monetary policy in place for a longer period of time.

Right now, it appears that the US economy is growing and has clearly recovered from the 2008 subprime mortgage crisis. However, various economic indicators give a mixed picture about the strength and sustainability of the US economy’s growth. Looking at the data, it seems that the US economy is in a “goldilocks” scenario – good but not too good.

Uncertainty triggers selldown

Since QE encouraged risk-taking and triggered a global bull market, the hints of a transition into less aggressive monetary easing called for an investment strategy reevaluation. Investors began asking questions as to what would drive markets higher if QE were to be tapered and eventually reversed.

If QE would indeed be tapered sooner than later, many are uncertain if economic growth would indeed be sustainable. Looking at the data, it seems that economic growth cannot stand on its own yet. Given the uncertainties surrounding QE and the global economy, some short-term speculators and nervous investors sold first and analyzed later.

The taper and the tape

The hints about QE tapering triggered large scale unwinding, deleveraging and repatriation. The unwinding of trades can be seen with how emerging market (EM) currencies sharply weakened vs. the US dollar since May 22, the day Bernanke hinted about QE tapering.

Because of EM currency weakness, foreign fund managers who typically look at portfolio returns in US dollar terms experienced painful drawdowns on their EM equity portfolios. This prompted them to unwind their EM equity positions, thereby triggering sharp corrections and chart breakdowns in most EM equity indices. This can be seen in the table below.




Program eelling in EEM

The uncertainty about QE and the global economy, the weakness in EM currencies and the liquidity scare in China prompted short-term traders and hedge fund managers to aggressively reduce their EM equity exposures. They did this mainly by selling down their positions in the exchange-traded fund (ETF) called MSCI Emerging Markets (EEM). Since the Philippines is part of EEM, the ETF had to sell down a proportionate share of Philippine stocks when EEM was being sold down. Because of the small size and relative illiquidity of our market, we experienced a correction that was sharper than expected when EEM was sold down. This is one of the main reasons why our index reached a bottom of 5,678 in this correction (5-6-7-8, July 1, 2013).

Philippine fundamentals remain strong

In response to hints of QE tapering, EEM was sold down as a basket. In doing so, foreign investors aggressively sold down their EM positions without regard for each country’s fundamentals.

Note that our country’s fundamentals are intact and are actually getting stronger.  In contrast, other countries which experienced similarly sharp corrections in their currencies and stock markets have been encountering economic and structural problems. The Philippines is not an export-dependent country like China and Korea. Moreover, our country is not a commodity exporter like Brazil and Australia. Also, we do not have the structural problems that plague countries like India and Indonesia.

Our economy draws its strength from robust domestic consumption. This is brought about by steady remittances and a growing BPO sector. Because of this, our economy is actually thriving in this “goldilocks” environment characterized by slow global growth and low inflation.


The markets finally get it

In past articles and in various presentations that we made, we alluded to the notion that Fed Chairman Ben Bernanke may be the most powerful man in the world. While it may not necessarily be true for politics, it seems to be the case as far as global stock markets are concerned. Fortunately or unfortunately, Bernanke’s words mean heaven or hell for the markets.

Last July 11, one sentence from Bernanke lifted stock markets all over the world. He said, “Highly accommodative monetary policy for the foreseeable future is what’s needed in the US economy.” Moreover, last July 17, Bernanke stated that the Fed’s bond purchases and the possible QE tapering are not on a preset course. He explained that the Fed’s actions will depend on data that show where the economy is going. Finally, Bernanke said that “Markets are beginning to understand our message and the volatility has obviously moderated.” These statements triggered strong rebounds in most global stock markets and drove the US markets to new all-time highs.

The PSE Index bounced strongly from the correction. Considering this and even Bernanke’s own words, our stock market’s extremely steep correction seemed like an exaggerated response to Bernanke’s hints about QE tapering. Moving forward, we expect our country’s fundamentals to shine as our economy thrives in this “goldilocks” scenario. With that said, we cannot discount the fact that volatility is back, as investors grapple with uncertainties about the Fed’s QE program and the global economy. Considering these, we recommend buying in dips or buying in tranches. Moreover, we advise investors to focus on companies that will continue to do well in this type of environment.

-----------------------

I really like this article.


jmces

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 :thankyou:


Wills

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By Valentino Sy

Philippine fundamentals remain strong


In response to hints of QE tapering, EEM was sold down as a basket. In doing so, foreign investors aggressively sold down their EM positions without regard for each country’s fundamentals.
Note that our country’s fundamentals are intact and are actually getting stronger.  In contrast, other countries which experienced similarly sharp corrections in their currencies and stock markets have been encountering economic and structural problems. The Philippines is not an export-dependent country like China and Korea. Moreover, our country is not a commodity exporter like Brazil and Australia. Also, we do not have the structural problems that plague countries like India and Indonesia.
Our economy draws its strength from robust domestic consumption. This is brought about by steady remittances and a growing BPO sector. Because of this, our economy is actually thriving in this “GOLDILOCKS” environment characterized by slow global growth and low inflation.


Wills

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WINNER'S CURSE

They identify the Indonesian rupiah (IDR) and the Indian rupees (INR) as facing "notable depreciation pressures." The Malaysian ringgit (MYR) is also vulnerable because of the country's small current account surplus.
The least vulnerable, in the Nomura analysts' opinion, is the Chinese yuan (CNY), followed by the Taiwanese dollar (TWD), Korean won (KRW), Thai baht (THB) and the Philippines peso (PHP); but the KRW and the TWD are vulnerable to a depreciation of the Japanese yen (JPY).


http://www.emergingmarkets.org/Article/3212480/Fed-tapering-who-would-suffer-who-would-gain.html


Wills

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Reply #10 on: Aug 22, 2013, 01:08 PM
^put that in the context of fundamental of our country.

Stock market will always have this irrationalities and exaggerations of current events.

Bubble in the Philippines? Meron ba ditong makakapagexplain na tunay na bubble sa Phillippines?


For me ang magkakaroon lang is lack of appreciation in our Stock Market of course babagsak ang presyo dahil fear ang nangingibabaw, BUT you also have to remember that what is REALLY happening inside our country has nothing to do with Market Participants Sentiment!

There are a lot of news about corruption and brouhaha at kung ano ano pang mga kabalbalan outside our beloved country lately and yes I believe that the price our Stock market will go down, BUT should you be scared? NO I don't think so.


bauer

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Reply #11 on: Aug 22, 2013, 01:56 PM
By Valentino Sy

Philippine fundamentals remain strong


In response to hints of QE tapering, EEM was sold down as a basket. In doing so, foreign investors aggressively sold down their EM positions without regard for each country’s fundamentals.

Note that our country’s fundamentals are intact and are actually getting stronger.  In contrast, other countries which experienced similarly sharp corrections in their currencies and stock markets have been encountering economic and structural problems. 

^ What exactly is the Philippines' fundamentals that are strong in the analyst's view?  It was not clearly elucidated in his published opinion from the Philippine Star.

My interpretation is simple - among Asian economies, tayo ang isa sa may magandang financial position to absorb the impact of an impending FED QE gradual pull-out.  Among the fundamentals are:

1. most of our government debt are sourced locally (more than 60%).
2. a significant portion of our debt are now geared mid to long term (more than 10 years to pay)
3. we have a good central bank reserve (last recall more than 80 billion dollars)
4. we have a good source of dollars (from OFWs' remittances - more than 20 billion dollars)
5. our private sector debt is among the lowest ( data is crude on this aspect)
6. we have a small but good current account surplus

In short, our money position is strong compared to other countries.  Other than that, our other fundamentals, which is structural in nature, are truly wanting and needs urgent reforms.  structural fundamental reforms will bring long term economic benefits to our citizens. 

sleeping bureaucrats needs to wake up and work round the clock while we can withstand the negative global implications of a federal reserve retreat from monetary expansionist policies.
« Last Edit: Aug 22, 2013, 01:58 PM by bauer »


Wills

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Reply #12 on: Aug 22, 2013, 03:06 PM
Bauer thank you.

I also want to add that ofw remittances that goes to their relatives who does not care what's happening in our stock market will continue to consume and spend!

BPO will still rise especially call centres. I've been doing some research lately regarding call centers as a only TEMPORARY job, in India they lost traction on their call centers because of lack of governments confidence that's why infrastructure is lacking and most people there view call center job as temporary. Also they admit that Filipinos are very good in english and we embrace US culture, because of our strength some of their companies also move here!

So kudos to Philippine Government and Private companies for putting confidence in call center industry.

Can someone here tell me that there are also other countries that can match Filipinos strength in the field of call center especially the labor cost and our reputation in giving service? I say NONE!

BPO industry and OFW remittance drives our country.

OFW will continue driving our economy for 10-20 years or more and also growing.

BPOs sustainability? I can only say that this is sustainable only if the US government allow so.

There is a good reason that the US government will not intervene, US companies are saying to their government that if you(US government) wants us to be competitive globally and provide more jobs to american people in the long run, let us continue our action.

Also Japanese are seriously planning to transfer their plants here. I hope our government invest in talent(provide free education) like China did.


Wills

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Reply #13 on: Aug 23, 2013, 08:17 AM
This Article best describes what Warren Buffett meant when he said this:

"In Economics always ask the question - And then what?" - Warren Buffett

Example is: After all the international funds pull their money and invest to developing markets it will overheat because right now the Average PE in US market is 15+ when it overheats ask the question And then what? answer is they will go back to emerging markets to look for cheap stocks and you will find in this article that the BRIC is slowing down, as we all know Philippines and Indonesia are growing, 3 years from now I strongly believe that Philippines will be more popular than it is today!

Also remember Philippines is much more stronger today than 5 years ago, and 5 years ago International Funds are attracted by our potential, question is how much attractiveness Philippines can get 3 years from now with all the growth coming our way?

YES there will be so much volatility in the coming years but remember stock market's price volatility does not mean risk in the business, so I say for those of us who invest today... we will surely benefit!

-------------------------------------------

John Waggoner, USA TODAY 3:21 p.m. EDT August 8, 2013

Emerging markets: Too much fun?

This is the point in the year when your friend Fred will come back from some exotic locale and tell you, at great length, how he trained an orphaned wallaby to play the flute. You hate Fred, because the only time you went to an exotic location, you got something that made your dermatologist give a low whistle and slowly back out the door.

Investors can, in fact, have very rewarding experiences sending their investments to exotic locations, such as China and Brazil — called "emerging markets," because they're vibrant, up-and-coming economies. But they may no longer be the growth giants they used to be — and they might not be as helpful to your portfolio as they once were.

The argument for emerging markets has always been simple: It's where the growth is. While the U.S. would be overjoyed for 3% growth in gross domestic product, China routinely clocks in at north of 7%, and Brazil, while more mercurial, often chalks up 4% or higher GDP growth. Russia's GDP growth is whatever Vladimir Putin says it is.

High economic growth can often result in high stock returns. The MSCI Emerging Markets index has gained 253% the past decade, vs. 109% for the Standard & Poor's 500 stock index with dividends reinvested. MSCI's Europe, Australasia and Far East Index — basically, the developed world index — has gained 125% the same period.

But along with your gains (or losses), you're adding a heaping helping of volatility, as investors found out recently. The average emerging markets fund has fallen 6.2% this year, for four reasons: Brazil (-22.2%), Russia (-12.0%), India (-15.0%) and China (-10.6%). These four countries, called the BRIC countries, were once the powerhouses of the emerging markets.

Losses are not particularly a reason to avoid emerging markets. These are, after all, stocks, and stocks are volatile. But emerging markets are inherently more volatile than stocks of developed nations, because their economies tend to be more specialized and their politics more unsettled. Markets love predictability, and countries such as Brazil are often unpredictable.

But adding emerging markets to your portfolio may not be as traumatic as it seems, and may, in fact, be a useful way diversify. Markets in Thailand and Argentina are not as closely correlated to U.S. and world markets. When your emerging markets fund is having an attack of the fantods, your U.S. fund could be rising, and vice-versa. Over the past decade, about 65% of emerging markets returns can be attributed to returns in the U.S. In contrast, about 85% of EAFE returns can be traced to U.S. returns.

Furthermore, emerging markets are cheap, relative to developed markets. The price-to-earnings ratio of the MSCI Emerging Markets index stood at about 11 at the end of the second quarter, while the S&P 500's PE was 15.7. Some of that cheapness is because of political risk; others suggest that companies in emerging markets are less efficient and therefore, cheaper.

Another reason emerging markets may be cheap: It's best to look at emerging markets when growth is accelerating, not decelerating — which it's currently doing, according to Rex Macey, chief investment officer for Wilmington Trust. "I still think that growth rates in emerging markets are stronger than those in developed markets, but they are going through a period of weakness," Macey says.

In China, for example, the key purchasing managers' index rose to 50.3 in July, just a whisker above its previous 50.1 level in June. Readings below 50 indicate contraction. China's official GDP growth is 7.6%, but analysts are skeptical about how accurate the Chinese government's figure is.

China has a longer-term problem, which is that its workers are getting older, and are demanding higher pay. "Outsourcing to China is not as attractive as it was," Macey says. While the population won't get old overnight, eventually, the country will have to address one repercussion of its one-child policy: a rising percentage of older people who need care. China is now focusing on internal consumer growth, rather than export growth, but that's a big shift in a big country, and could take a long time.

What's an investor to do? The average person can live a long and happy life without the generally recommended 5% position in emerging markets, especially if you own a broadly diversified international or global fund. Vanguard Total International Stock Index had 16% of its assets in emerging markets at the end of June, according to Morningstar. The American Funds EuroPacific Growth Fund, the nation's largest international fund, had about 18% of its assets in emerging markets.

If you're more adventuresome, and want to test the emerging markets waters, a fund that looks for cheap, beaten-down stocks is probably best at a time when the markets are depressed. Templeton Developing Markets (ticker: TEDMX) is a longtime sturdy performer, but an expensive choice: The A shares carry a 5.75% maximum sales charge and a 1.7% ongoing expense ratio.

For the cost-conscious — and that should be everyone — there's Vanguard Emerging Markets Stock Index (VEIEX), which tracks the FTSE Emerging Markets Index and charges no sales charge. Expenses: 0.33% a year.

At this juncture, emerging markets are probably best for those who are willing to take reasonably large risks. It's not as heart-stopping as, say, being chased by a tank through the jungle. But if you buy cheap and mind your investment, it could be more rewarding.


Wills

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Reply #14 on: Aug 23, 2013, 08:20 AM
Latest news:

CMC markets says they are absolutely avoiding GOLD and BONDS and says they will sit tight in emerging markets volatility.


Also mentioned that they are not concern in funds pulling out, they are pulling out because of India's current Fundamental.
« Last Edit: Aug 23, 2013, 08:24 AM by Wills »


 


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