When most people talk about emerging markets, they usually mean the Big Four, Brazil, Russia, India and China. Those are the places that all the analysts are covering, all the time. It's almost as if they are investing by acronym. The truth, however, is that these four countries could not be more different, and therefore must be analyzed separately.
Deconstructing the BRIC
Russia is a wasteland littered with corpses of investors who thought that there was such a thing as transparency. As it turns out, Russia is a manipulated market controlled by the oligarchy and the Kremlin for their purposes.
China is a great story – too bad everyone knows about it. The problem here is that no one believes any numbers that come out of the country… or half of the companies. The Chinese have made reporting news an art form.
India has potential – more potential than China perhaps. But, after traveling to the country for more than two decades, it's become apparent that India is a very long-term growth story. Things just don't move fast in this bastion of bureaucracy.
Brazil, perhaps the most profitable of the four, trades like a junkie on crack with volatility that seems to reflect anything but its fundamentals.
Still, three out of the four (Russia excluded) are bona fide emerging markets and deserve your attention during periods of crisis. However, if you want to find the next stream of profits – before the crowd develops a new acronym – you need to look elsewhere. My choices are Vietnam and Cambodia.
Vietnam and Cambodia: The Next Emerging Markets of Choice
Having spent time in Asia last year, I came to realize that, especially in the case of Vietnam, there was a massive disconnect between what was happening on the ground and what was going on in the Stock Market. Things were hopping on the ground; business was going on 24/7 in places like Saigon (Ho Chi Minh City), yet the market was hitting the lowest level in three years, crashing some 70% from its highs. That's what I like to see. That is what opportunity looks and smells like.
Next door in Cambodia, the Stock Exchange was just opening for business. In fact, it's so new that the first company only began trading on the exchange later last month. Talk about an IPO! By year's end, there will be three companies trading. Any one of the three is worth a flyer, but you'll pay up for each one, as demand is high. There's a better way to invest – through private equity.
Cambodia is modernizing quickly. Technology is paving the way for the country to leapfrog some of its neighboring frontier markets. It's one of the few countries that I have traveled to where you can get a visa in a matter of hours on-line. In places like Siem Reap, where the temple complex of Angkor Wat and Angkor Thom are located, you are surrounded by first class hotels and restaurants boasting wireless access everywhere. Even the airport is brand new.
It is the frontier markets where the next generation of profits will be made. In my book, Where in The World Should I Invest?, I cover more than 15 emerging and frontier markets in detail – not only where to invest, but more importantly, HOW to invest in each market.
Each country is totally different. There are certain rules that must be followed – guidelines that tell you exactly when the time is right to invest in Turkey, and even Russia. Emerging markets were meant for trading. It's a lesson I learned firsthand when I was on the ground in Asia during the beginning of the Asian Financial Crisis in 1997, or when I was in Cairo days after the overthrow of the Mubarak regime.
Emerging and frontier markets are the markets of today and tomorrow. There is money migration going on to markets with high growth and strong trends in consumerism. It's time to follow this trend and boost your investment returns in the years ahead.
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Karim Rahemtulla is Director of Emerging Markets, Wall Street Daily.