Big Macs, Mercantilism and the Commodity Curse
The Emerging Markets Investor
by jvande
1M ago
  As the world economy moves away from the globalization of manufacturing value chains and finance, the protection of domestic markets is back in favor with policymakers. However, the neo-mercantilists will have to overcome high costs, including overvalued currencies. The case of TSMC’s investment in a new $40 billion semiconductor plant in Arizona is illustrative. The Taiwanese chipmaker gave in to pressure from the Biden Administration and agreed to build a “fab” in Arizona, but it does not seem to be happy about it. The company has complained about “exorbitant costs, unmanageable worke ..read more
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4Q 2023, Expected Returns in Emerging Markets
The Emerging Markets Investor
by jvande
2M ago
Emerging market stocks underperformed the S&P500 in 2023, for the sixth year in a row and the ninth  out of the last ten years. This leaves the valuation premium of the S&P500 at its highest level since the peak of the previous tech bubble in 2000. The U.S. market appears to be enjoying a blow-off, driven by a consensual view on an immaculate soft-landing for the U.S. economy and optimism on future AI-fueled productivity growth. The chart below illustrates the current expected returns for EM markets and the S&P500, based on a CAPE ratio analysis. The Cyclically Adjusted Price ..read more
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Lula’s Speech in Salvador
The Emerging Markets Investor
by jvande
2M ago
Lula’s speech in Salvador inauguration of Aeronautic Institute, in defense of a big activist welfare state working in benefit of the people and against the reactionary elites. “I don’t know if you noticed that, after listening to everyone speak, it would be unnecessary to make speeches here about the Aerospace Technological Park of Bahia. But I think this is the first time I visit Bahia in 2024. And I wanted to tell you that visiting the states of the Federation will be a routine for me from now on. Unlike Jerônimo, who inherited a well-planted farm, with prepared seeds, meaning fertilizer alr ..read more
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Argentina’s Milei at Davos
The Emerging Markets Investor
by jvande
2M ago
  Nice speech by Argentina’s Milei at Davos. Not sure how any of this works in practice, but surely refreshing after 40 years of socialism in Latin America. Good afternoon, thank you very much. Today I am here to tell you that the West is in danger. It is in danger because those who are supposed to defend Western values are co-opted by a worldview that inexorably leads to socialism and, consequently, to poverty. Unfortunately, in recent decades, motivated by well-intentioned desires to help others and by the ambition to belong to a privileged caste, the main leaders of the Western world h ..read more
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Why Did Korea Get Rich While Brazil Stagnated?
The Emerging Markets Investor
by jvande
2M ago
South Korea and Brazil followed similar development paths until the mid-1980s. Then, they separated, with South Korea progressing into the club of rich nations while Brazil languished in the “Middle-Income Trap.” South Korea took the arduous path of moving up value chains and conquering global markets for manufacturing exports; Brazil deindustrialized and reverted to its historic dependence on commodities. Looking back to distant history, both South Korea and Brazil were regional laggards. Korea trailed Japan and Taiwan on the path to industrialization; Brazil fell behind its Southern Cone nei ..read more
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The Energy Transtion in Emerging Markets. Part 2
The Emerging Markets Investor
by jvande
4M ago
  Assuming current trends, the global annual growth rate of consumption of primary energy will nearly double this coming decade to 1.9%, compared to 1% over the past decade. This is solely because the slow-growing economies of the OECD, with high levels of per capita energy consumption but stagnant or declining growth in demand, are being supplanted by higher-growing emerging economies with very low per capita consumption levels. A similar scenario can be painted for the growth of oil liquids oil and gas consumption. Since 2013, the emerging world, led by China and India, has consumed mo ..read more
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What Will Fuel the Growth of Developing Countries? Part I
The Emerging Markets Investor
by jvande
4M ago
That economic activity is transformed energy is a truism. Technological innovations, allowing the harnessing of wind, water, coal, oil, nuclear, and solar power, were the driving force behind the Industrial Revolution since the 18th century. Yet, because of environmental concerns, energy consumption growth has slowed, and political pressures are increasing to radically reduce the consumption of hydrocarbons, which are still by far the primary source of fuel. The two charts below show the dramatic slowdown in global energy consumption growth, based on data from the Energy Institute Statistical ..read more
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Convergers and Laggards in Emering Markets
The Emerging Markets Investor
by jvande
5M ago
  Recent decades have brought impressive gains in prosperity for many developing countries. By attracting investment and opening up to the world, many countries have been able to grow more quickly than rich countries that operate at the technological frontier. However, this process of growth has not benefited all countries. Worse, many poor countries have fallen behind, becoming relatively poorer. Convergers in emerging markets can broadly be separated into two categories: first, countries attracting foreign direct investment and participating in the globalization of trade; second, countr ..read more
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Why do Emerging Market Stocks Underperfom?
The Emerging Markets Investor
by jvande
5M ago
The earnings crunch suffered by emerging markets over the past decade (EM has an Earnings Problem) has been the cause of the dramatic underperformance of the asset class relative to U.S. stocks. Poor EM earnings have resulted from cyclical factors typically affecting all economically sensitive assets, such as commodities and industrial cyclicals. Furthermore, factors specific to the U.S. market have also contributed significantly to the outperformance of U.S. stocks. Most importantly, the flourishing of quasi-monopolistic technology giants (e.g., FAANGs, the Magnificent Seven, and a few othe ..read more
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Emerging Markets Have An Earnings Problem
The Emerging Markets Investor
by jvande
6M ago
The past decade has been a disaster for investors in emerging markets because nominal earnings measured in dollars have not grown. There are several reasons for this earnings stall: First, the past 11 years have been a period of dollar appreciation. Due to its broad global use in invoicing and financing commercial flows, a strengthening dollar has had a depressing impact on most developing countries. Moreover, as typically occurs, a strong dollar has meant weak commodity prices and poor results for commodity producers (Latin America, Russia, South Africa, etc.). Second, the fall in earnings an ..read more
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