2010 Stock picks: Emerging and frontier markets

By: ispeculatornew
Date posted: 01.08.2010 (5:00 am) | Write a Comment  (8 Comments)

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It’s an obvious bet isn’t it? You think the market is going to rebound and so the 2 most obvious bets are technology and emerging markets. Both of these sectors generally profit a lot more than the stock market on rebounds (and usually suffer more as well when markets tank). The picture is not clear yet but I do still think that the market will end 2010 up so going for emerging markets seemed like a good pick. I did not end up selecting any emerging stocks in my 4 stock picks (although some could say that Sohu is an emerging market bet..in some ways it is but I still consider it as a technology stock first) but I hesitated greatly between those and the two commodity picks that I ended up taking (UNG and JJN).

The most popular choice by very far in emerging markets is EEM, which tracks the MSCI Emerging Markets Index. I can tell you right now, EEM is not recommended by me under any circumstance. If you want the broad index, I would highly suggest using VWO which trades at about the same price, here is why:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
GOOGGoogle Inc1122.9832.9731.8221.570.8532.374.42248.350.96153.3422.4118.89

The 3 year return of EEM is a bit higher but given they track the same index; I would not hesitate to buy the one that has almost 3 times less fees. Do any of you still own EEM? If so, what is the reason for doing so? I remember a few months ago, EEM was many times the size of VWO… But that is changing fast as investors look for the cheaper solution (rumours are that Ishares will probably decrease management fees on EEM but so far they remain unchanged).

Going into specific emerging country companies can be a bit tricky if you do not have some advanced knowledge of the company. I know of a few people who went to China for pleasure and then learned about a company and decided to invest. But doing so from home while only looking at financial statements can be very tricky. The best way to do so would be to look at ADR’s that are listed on US exchanges. Not only are they easier to trade but they also submit statements according to US accounting rules instead of their own country rules.

Here are a few ideas:

VIP: Vimpel (Russian telecommunications company)


BIDU: Baidu – Chinese Internet portal & search engine (which helped me win the 2009 stock picks competition)


TX: Ternium (Steel company that operates in Mexico and South America)

And finally, the way I probably prefer playing emerging markets when speculating is through specific country ETF’s:

BRIC’s:

EWZ: Brazil
RSX: Russia
INP: India
FXI: China

Other emerging countries:

EZA: South Africa
EWW: Mexico
EWA: Australia
VNM: Vietnam
IDX: Indonesia
FRN: Frontier countries

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8 Comments

  1. Comment by John — January 8, 2010 @ 8:17 am

    I believe in Emerging Markets and I still own EEM (unfortunately bought it at its peak). At that time, VWO didn’t exist.

    VWO is really attractive, but I still do not want to get out of EEM since my unrealized P&L is negative…. Hopefully 2010-2011 is going to be good for emerging markets!!!

  2. Comment by IS — January 9, 2010 @ 8:58 pm

    @John – So I guess this was bought in a cash account? If so I see what you mean but this could generate a loss and a tax return if it’s in your cash account:) And then get into VWO:)

  3. Comment by Mark — January 12, 2010 @ 9:00 pm

    Good call. VWO has significantly lower fees then EEM.

  4. Comment by the Cynical Investor — January 16, 2010 @ 2:18 pm

    typo

    “EEM VWO
    Expense Ratio: 0.27% 0.72% ”

    should be the other way around

  5. Comment by IS — January 17, 2010 @ 8:58 pm

    @TheCynicalInvestor – Good catch, thanks

  6. Comment by gian — February 10, 2010 @ 3:02 am

    I don’t know if anybody’s reported this before but the browser I have can’t display this article as it should… It appears that a whole chunk of if is not correctly displayed and the layout of the article doesn’t appear to be right. Are you sure this article has been tested under Opera?

  7. Comment by IS — February 11, 2010 @ 2:55 pm

    @gian – Yes, unfortunately, we will have a new design within a few weeks:)

  8. […] which would tend to indicate the fact that investors are finally catching on to the fact that I discussed last month when I compared the two emerging market ETF’s. This will eventually lead to IShares/Blackrock diminishing the fees on EEM but in the meantime, […]

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