Jim Powell see s a light at the end of the tunnel for select emerging markets. Here, the editor of Global Changes and Opportunities Report looks at his top picks among ETFs to benefit from a potential rebound in Brazil and Inda.
Steve Halpern: Joining us today is Jim Powell, editor of Global Changes and Opportunities Report. How are you doing today, Jim?
Jim Powell: Fine, Steve; and how are you?
Steve Halpern: Very good. Thank you for taking the time. As a leading expert on global investing, you’ve also followed the emerging markets very closely for years and you suggested these former Wall Street darlings could begin what you call a long and impressive rebound. Could you walk our listeners through the headwinds that these markets have faced and explain why you see a potential light at the end of the tunnel?
Jim Powell: Well, the second question first, Steve. I think that if you’re looking for growth in the world you need look no further than emerging markets and the reason for that is the same reason that babies grow faster than their parents -- you’re starting from a very low point and just about everything you do winds up being a big percentage change.
The emerging markets were doing superbly until around 2008 when the global economy started to fall out of bed and commodity prices started to fall and a lot of investors got burned pretty heavily.
And now they don’t want anything to do with the emerging markets. There are some signs of life there that people should look at carefully and I think that if they take positions now they’ll do very well.
Steve Halpern: Now interestingly, you note that while most individual investors are avoiding the emerging markets, you also see institutional investors beginning to take a closer look. Can you expand on that?
Jim Powell: They have better information, Steve. They have information about the individual markets that individual investors can’t get, they have people on the ground, they have analysts within the countries and they’re just beginning to come back especially to India and South America in emerging markets.
They are not blind however; they’re not just making broad investments. They’re basically moving out of the Asian markets, the Korean funds for example, Malaysia and South Korea, they’re just saying that the real growth for the next few years is going to be in India and South America.
Steve Halpern: Now turning to South America, one emerging market in particular that’s caught your attention is Brazil. What’s the situation there?
Jim Powell: Brazil is a country in transition. They’ve made some big political mistakes which had a big impact on the economy. Dilma Rousseff was a very left wing president who instituted a lot of socialist and welfare programs that bankrupted the country, ran debts way up, hurt the business community.
And that came on top of the commodity slide and the slow down and the growth of the global economy. Now she’s on the way out and many of her programs are going to be on the way out.
We see some upticks in some commodity prices and they happen to be the commodities in raw materials that Brazil sells and we’re seeing a little bit more strength in the global economy and China seems to be doing a little bit better than a lot of the doom-and-gloomers believed and the same thing is happening in Brazil that we see in several Asian emerging economies as well.
They’re turning more and more to their internal markets and turning more towards manufacturing. I think if you put it all together you get a really good case for investing in this South American dynamo.
Steve Halpern: Now to invest in this market, you recommend the iShares MSCI Brazil Cap ETF (EWZ). Can you tell our listeners a little about this fund?
Jim Powell: Yes, it tracks the Brazil Index, the MSCI Brazil 25/50 Index. The Index consists of a broad group of larger companies in Brazil and from their small airliner company that’s growing very quickly to sugar cane.
Basically, what all of these indexes do in the emerging markets is emphasize the companies that are into the basic infrastructure for our country. That’s in electricity, telecommunications, cement, foods, and so forth. That’s where the growth is going to be for the youngest years or the more emerging years in those markets.
Steve Halpern: Now you also highlight India. Could you share your bullish case for this country?
Jim Powell: Well, if you don’t want to wait for a turnaround to begin, India’s the place to go. It is now the world’s fastest growing large economy. If you believe the numbers, and they may be inflated a bit, India is on track to grow around 7.5% to 7.6% this year.
Some critics say it is as low as 6% -- but 6% is still very, very good. India is a study in chaos from an outsiders’ perspective; it’s got crazy politics, there’s a lot of violence, it still has a caste system. You’ve got horrible overpopulation and a terrible public school system and so forth, but it’s a dynamic economy.
Everybody wants to work, they’ll work as much as possible, wages are slowly beginning to come up. We’re seeing a transition from very, very simple back breaking work to more high tech work in fact; India is basically the IT capital of the world right now. If you want something that’s already on a roll that I think has a lot of future potential as well, I think India is the way to go.
Steve Halpern: Now for investors interested in this market you recommend iShares MSCI India ETF (INDA). Can you talk a little about this particular fund?
Jim Powell: Yes. As with the Brazilian fund, the MSCI India Index is what the fund tracks and it consists of a broad section of stocks in India, some top out motors which are a big producer, just about every kind of transportation equipment down to sugar companies.
Steve Halpern: Now in your research you have decided that these are long-term trends likely to last for many years to come. Before we go, I’d like to ask you to comment the appropriate investment time horizon that investors should have when considering these ETFs.
Jim Powell: Well since the individual investors have yet to rediscover the emerging markets, I think when this starts to begin, when people realize that they’ve thrown the babies out with the bath water that we’re going to see a really good initial spike, probably later this year.
From there on out I expect to see another period of slow but rather steady growth that will last, oh, anywhere from five to 10 years, basically the same as the last cycle.
Steve Halpern: Again, our guest is Jim Powell, global expert and editor of Global Changes and Opportunities Report. Thank you so much for your time today.
Jim Powell: Thank you Steve.
By Jim Powell, Editor of Global Changes and Opportunities Report