Tuesday April 22, 2014
Economic sanctions have proven pretty reliable in the past when dealing with countries like Iran and North Korea. In these cases, economic sanctions have at least prompted the regimes to reconsider their plans in exchange for public funding from the International Monetary Fund (IMF) or World Bank.
Russia differs in a few ways. Unlike Iran and North Korea, Russia doesn't have an explicit benefactor willing to pay its bills. The country is also significantly more intertwined in the global economy, which makes it difficult to go too far without disrupting the flow of investment dollars.
The latter has been proving especially true over the past few days. Capital is flooding out of Russia, the local stock market is in a tailspin, and the country's currency is weakening. Even if a diplomatic solution is achieved, some economists say it won't be enough to avoid a recession in 1H 2014.
Economic sanctions could further enhance these painful events, but it turns out they may not be entirely necessary after all. The global financial markets may be putting enough pressure on the country alone to push for change.
Monday April 21, 2014
Investor appetite was high for emerging markets in last month, but they have recently experienced another sell-off. Rising tensions with Russia were to blame for the most recent declines, with the iShares MSCI Emerging Markets Index ETF (NYSE: EEM) trading down 0.19% over the past week compared to a 3.04% gain in the S&P SPDR ETF (NYSE: SPY) over the same timeframe.
Despite the modest setback, emerging markets have outperformed the U.S. markets by quite a bit over the past month, with EEM trading 7.11% higher compared to SPY's modest 0.45% gains. Investors looking at price-earnings ratios may find that emerging markets aren't all that cheap anymore.
EEM trades with an average P/E ratio of 19.38x and a P/B ratio of 3.08x, compared to SPY's more modest 18.68x P/E ratio and 2.61x P/B ratio. Of course, emerging markets are normally expected to grow more quickly and justify a higher multiple, but the added macroeconomic risk means they may not be worth the price now.
Quantitative value investors may want to take note and adjust accordingly.
Friday April 18, 2014
The Cambria Global Value ETF (NYSE: GVAL) was recently launched in March of 2014 to bring value investing worldwide. The international ETF will screen for opportunities using criteria based on Benjamin Graham and David Dodd's work in value investing and securities analysis, selecting the most attractively valued markets across 45 developed and emerging market countries.
With an expense ratio of just 0.69%, the international ETF doesn't charge quite as much as many international funds, but the newness may warrant conservative investors to spend a bit of time on the sidelines to see how the strategy plays out.
Wednesday April 16, 2014
RenAsset Management Chief Investment Officer Plamen Monovski recently told Investment Week Senate Conference delegates that the entire value of the U.S. technology sector is more than equal to the value of emerging markets. In particular, the entire Turkish market value right now is roughly equivalent to Starbucks, while Facebook's valuation could purchase all of Malaysia's public market.
These comparisons are not only surprising on a fundamental level, but highlight just how cheaply valued many emerging markets are relative to the U.S. Certain emerging markets could present a compelling opportunity given their dividend growth, increasing competitiveness, and ongoing improvement in currency volatilities and fiscal policies in some cases.
Shares of the iShares MSCI Emerging Markets Index ETF (EEM) is trading up more than 8.4% over the past month.