Investing in Emerging Markets: Three Reasons Why You Should Buy India, Not China

by Karim Rahemtulla, Advisory Panelist

India has come a long way since 1997.

The year marked my first trip to the country – and I remember it well, as I headed back to America with a resounding “sell” ringing in my ears with regard to India’s investments.

At that time, the market was clearly manipulated by several large traders. One in particular was Hershad Metha, referred to as the “Big Bull.” And bull is exactly what he fed to the masses, as he borrowed money from the government-owned banks and plowed the cash into the stock market. Result? The mother of all (fake) bull markets, created by a man with a choice word missing from the end of his nickname!

Knowing this, and the precarious position of investing in emerging markets

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In its World Economic Outlook published today, the International Monetary Fund (IMF) said that the global economy is now beginning to pull out of recession, but warned that "stabilization is uneven," and the "recovery is expected to be sluggish." The Fund said that the risks to the financial system had moderated since its last forecast in April, mainly due to unprecedented policy actions undertaken by the central banks and governments all over the world, but banks continue to be hampered by bad loans on their balance sheets. The Fund urged the governments not to become complacent about the recent recovery but continue to stimulate their economies through 2010 with greater spending or tax cuts. IMF expects the world economy to shrink by 1.4% in 2009, slightly worse than its earlier estimate of 1.3%. However, it raised the growth estimate for 2010 to 2.5% from 1.9% earlier....

Keep an eye on the Chinese and Brazilian stock markets on Monday.

The two emerging market nations - both members of the BRIC group (Brazil, Russia, India, and China) - will each welcome a major new IPO to their respective stock markets.

The fact that they’re debuting on the same day is purely coincidental, but the story here is that both are very significant not only to their own countries, but could also underpin the emerging market area.

Let’s take a look at these IPOs in the context of the broader emerging market topic… the effect this often volatile but flourishing pack of nations is having on the global economy - and how you can hitch a ride…

Emerging Markets Rebuilding Momentum

In the excellent movie “Wall Street,” Michael Douglas’s slimy Gordon Gekko character famously proclaims, “Greed is good. Greed works.”

Some equally unscrupulous Wall Street characters lived by this mantra. But they became so fat

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OECD: Emerging Economies Will Lead Recovery Organization for Economic Cooperation and Development (OECD) in its Economic Outlook released yesterday confirmed what the World Bank said a few days back, that the emerging economies of China, India and Brazil (or BRIC, minus Russia) will have strong recoveries next year, while the U.S., Europe and Japan will lag.U.S. GDP is expected to fall 2.8% rate this year, trough during the second half of this year and then grow at an anemic rate of 0.9% in 2010. Signs of recovery are not yet clearly visible in the Euro area, where the GDP is expected to contract 4.8% this year and then show 0% growth in 2010.On the other hand, as per OECD, Chinese GDP will grow at 7.7% in 2009 and 9.3% in 2010, Brazil is expected to fall by 0.8% in ...

Emerging markets are showing mature markets a clean pair of heels, as can be seen from the rising trend line of the MSCI Emerging Markets Index relative to the Dow Jones World Index since late October. The fact that developing countries are now outperforming the developed ones is a sign that global investors are beginning to take more risk - a necessary ingredient for stock markets in general to improve further.

Source: StockCharts.com

Emerging-market equities have outperformed mature markets by 31.2% from the October lows. Further evidence comes from the tables below, showing the performance of the MSCI World Index and the MSCI Emerging Markets Index, together with a few individual emerging-country indices, over various measurement periods and in both local currency and dollar terms.

 

I would expect the outperformance

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I attended a Richard Russell tribute dinner in San Diego on Saturday. This function, in honor of the 84-year old Russell’s 50 years as a newsletter writer, was attended by almost 500 people, including the likes of John Mauldin, Robert Precter, Ian McAvity, the Aden Sisters, Ivan Boesky, Bill Bonner, Bert Dohmen and a host of others.

There was a brief question and answer period. One visitor asked him what he would do if he was running the country. In classic Russell fashion, the venerable analyst answered, “I’d do nothing. I’d let it happen. I’d let the bear market do its work.”

For the rest, Aaron Task of Yahoo Finance, Tech Ticker pulled me aside for a short video interview and the paragraphs below are from his

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New Market Vectors ETFs would deal mainly in A-shares by initially using swaps and derivatives to gain access. 

 

Here's a novel idea. With many economists considering China on the verge of mounting a serious comeback in the second half of this year, what about an exchange-traded fund that provides exposure to the mainland's previously untapped local stock market?

That time has come. Van Eck Global Advisors has filed to launch the Market Vectors China A-Shares ETF on the New York Stock Exchange. The proposed ETF would start by dealing in swaps and derivatives to mimic its underlying index.

As noted in the filing, so-called A-shares in China are largely only made available to local investors. But there are some cracks opening in China's wall to outside investors: Namely, the Qualified Foreign Institutional Investor program, a special license granting foreign investment groups access to local markets.

As a result, Van Eck ...

New Market Vectors ETFs would deal mainly in A-shares by initially using swaps and derivatives to gain access. 

 

Here's a novel idea. With many economists considering China on the verge of mounting a serious comeback in the second half of this year, what about an exchange-traded fund that provides exposure to the mainland's previously untapped local stock market?

That time has come. Van Eck Global Advisors has filed to launch the Market Vectors China A-Shares ETF on the New York Stock Exchange. The proposed ETF would start by dealing in swaps and derivatives to mimic its underlying index.

As noted in the filing, so-called A-shares in China are largely only made available to local investors. But there are some cracks opening in China's wall to outside investors: Namely, the Qualified Foreign Institutional Investor program, a special license granting foreign investment groups access to local markets.

As a result, Van Eck ...

It’s hard to look at Peter Schiff with anything other than awe.

After all, the 44 year-old president of Euro Pacific Capital was mocked on networks like CNBC and Fox for predicting “wild” things like a real estate bust, a credit crunch, and a deep recession. Two years later, and Schiff’s original prophecies have come true.

That validation has been earning Schiff some much-deserved credibility in the financial world, where until now he’s been dismissed as overly pessimistic.

But does Schiff really deserve the acclaim he’s recently found?

While Schiff has proved himself as an economist, his ability to parlay those predictions into profits for his clients was questionable for 2008. For the last few years, he’s been betting big on overseas investments and precious metals – two areas that got hit as hard or harder than the S&P last year.

According to Morningstar, the average international equity fund performed 7% worse than the

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Within just the past month, the field of leading ETF and ETN performers has diversified to include several different sectors. 

The market rebound, whether a joyous celebration of a new year or something that might last awhile, is certainly changing the landscape for stock and bond investors.

As we noted in December, leveraged exchange-traded funds dominated top performers in 2008. (See story here.)

Many of those types of portfolios are still leading the pack today. But in the past month, the field has become a lot more diverse in terms of the top 20 performers. For example, the UltraShort FTSE/Xinhua China 25 ProShare ETF (NYSE: FXP) had gained more than 22% in that period heading into Wednesday, according to Morningstar.

But the top gainer has been the PowerShares DB Crude Oil Double Short ETN (NYSE: DTO).  It was up nearly 34% in 2008.  Other notable leading leveraged performers in the past month include a pair of exchange-traded notes. Those are:

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