load up on emerging markets

Are you loading up on emerging markets stocks? I’m not.

As much as I like Jeremy Grantham, I think he’s off on both counts here. As far as emerging markets…

Grantham says: “Not surprisingly, we believe it is in the overlap of these two ideas, Value and Emerging, that your relative bets should go, along with the greatest avoidance of U.S. Growth stocks that your career and business risk will allow.”

Here’s Grantham back in 2018 (https://www.bloomberg.com/news/articles/2018-02-22/jeremy-gr…:slight_smile:
“Jeremy Grantham, the 79-year-old investor known for his bearish views, is so bullish on emerging-market stocks that he’s telling his own kids to invest more than half their retirement money in the asset class.”

Check out the last 5, 10 year performance of EEM vs SPY (https://stockcharts.com/freecharts/perf.php?SPY,EEM).


Well, maybe those kids can eventually benefit from Grantham’s more reliable investment fee.

BRICS. Brazil, Russia, India, China. No, thank you.
Emerging Europe? Nope.
Latin America? Better be selective.
What’s left? Emerging Asia? Maybe someone on the board can direct me here. Which country? Which companies? Do I need to worry about currency risk, for example when the USD appreciates in a strong way?

I prefer U.S. companies, with U.S. innovation, in USD.


Hong Kong is cheap. Maybe China too … COVID suppression, property slump in China (not HK as yet).

For example the biggest REIT in Asia, Link REIT, modestly geared, productive management, 4.9% yield.

That’s a real yield of 4.9% … compare to TIPs for example.

What’s the equivalent in USA?

The Hang Seng index shows a PE of 7.

EM typically suffers from a rising IR environment just like tech stocks do. It would seem that there will be a time to reallocate into EM; but we have not likely arrived that that time.

First month that the Fed doesn’t increase interest rates (or first month when the future markets are predicting no increase) would likely be a better time.

For example the biggest REIT in Asia, Link REIT, modestly geared, productive management, 4.9% yield.

That’s a real yield of 4.9% … compare to TIPs for example.

Comparing an EM REIT to TIPs doesn’t seem like a fair comparison.

If one wanted dividends, I think they would likely be better off with something like like IBM, which is yielding 5% and is a qualified dividend than an EM that has a higher tax rate and also suffers from currency risk.

Does not own IBM outside of ETFs.

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Sorry, mostlylong, I agree with Jeremy Grantham. I’m bullish on international stocks, especially emerging markets and Japan.

Yes, I know that emerging market stocks have been underperforming for a number of years. That’s the process needed to produce screaming bargains. Back in the 1970s and early 1980s, the past performance figures for US stocks showed massive underperformance. In August 1979, Business Week magazine published its now famous cover story “The Death of Equities”, which lamented that stocks had been underperforming just about everything, including Treasury Bills, FOREIGN stocks, gold, oil, and real estate. All the rationalizations about why US stocks would underperform for the next 1000 years sounded reasonable at the time but now look so silly. This period of underperformance was followed by a major secular bull market.

Nowadays, US stocks are overvalued, but international stocks are undervalued. Furthermore, the strong dollar has made foreign currencies cheaper than usual on a purchasing power parity basis. When you combine the undervaluation of the stocks AND the undervaluation of the underlying currencies, you’re looking at the kind of buying opportunity that US stocks haven’t offered since the 1930s and 1940s.

I do my international investing through ETFs, and I pick well-diversified ones to mitigate company-specific risks. Except for US and Japanese stock ETFs, no single-country ETF provides good diversification against company-specific risk. Except for my Japanese stock ETF, I only pick international stock ETFs that are diversified by country. This ensures that my whole portfolio doesn’t get destroyed if one country implodes. So I won’t be affected too much if one of the BRIC countries goes under.

The human mind reacts more to uncertainty (with unquantified risk) than to quantified risk. Emerging market companies have pricing advantages because Western investors are uncertain about how to evaluate political, legal and accounting risks.

One theme which I’m following is to have a section of my portfolio tied to natural resource miners. Their profits may fluctuate with the geopolitical economy, but their assets will retain value. One of my holdings is a modest amount of a South African ETF which is largely based on gold miners. I figure that, if I’m going to “own gold” as part of my hedging structure, there is more ricing advantage here compared to some of the other gold miner stocks I own (NEM, GOLD).

Sometimes investments blow up - like my Lukoil position which has likely become worthless - but if you are tossing chips on the long shot boxes of the crap table, while unpleasant when they take place, owning some thing risky means, well, it’s risky and you have to expect occasional “accidents”. That said, “no pain, no gain” and in the long run it is very rare that this level of failure takes place (I remember one or two similar messes during the dot-com days) and I keep these outlier bets relatively small.


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