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(Re: PRLAX, others...) WHY is Brasil going nowhere fast?
Petrobras is floating lotsa new shares, I know, thus effectively de-valuing current shares......The country's infrastructure needs to catch up, I know. Is Itau Unibanco doing well? It's the biggest holding in PRLAX. Other reasons? Gov't putting on the brakes to tame inflation? But JEEZ, Brasil IS a GROWING nation, not economically mature, like USA...
Economic growth and stock returns do not always go hand in hand. In fact, the frequent stock issuance is a significant dilution in a lot of emerging markets. There was a research paper on this. On the long term, you do not see the spectacular returns of the past 5 years.
Last year China was growing just as fast as the previous year but its stock market was the worst in second half. Take a look at India this year.
Emerging markets stocks do not always follow fundamentals either. The market is shallow and speculators can swing it either way easily.
While that is true, the research paper looked at really really long time frames. So it's not true that you can't do well in 5 - 10 year timeframes. Looked what happened the past 10 years in EM.
We enjoyed nice returns because we started with low valuations.
So that is a problem is when we have a research paper that is indeed valid but again they looked at like 80 year performances. That doesn't mean you can't pounce on EM opportunities when they are cheap and do well over 5, 10 or 15 years. Take your profits and enjoy.
Moreover, people don't realize the devil in the details. People often cite that the research paper concluded that the fastest growing GDP countries do not outperform the slowest group of countries. That is true but the difference wasn't all that large. Moreover, the research showed that it wasn't linear. Meaning, the fastest growing countries did outperform those in the middle of the growth pack.
So you have to be careful with plugging in a research paper into real life when the research paper looked at 80+ years and it also showed that the performance wasn't linear across slowest to high GDP growing countries.
So if you're sitting there thinking you're in good hands investing in lower or middle of the pack growing countries --- then you've completely missed the details of the research as well as wonderful EM returns the past 7+ years.
Brazil is THE economic engine of Latin America. Its oil reserves and natural resources will help sustain a huge long-term economic growth cycle. Will there be pullbacks from time to time? Of course. Will there be inflation in this kind of growth cycle? Of course. How their government handles these things, along with necessary infrastructure and social spending will help to determine the eventual flow of growth, but it's hard to imagine a no-growth scenario for Brazil. The Olympics will create a huge infrastructure build-out, and rest assurred that Brazil will work to present itself as well as it can to the world on that stage, where billions will be watching.
I personally have a lot of confidence in Latin America, but I also recognize there will be some bumps along the way. We use ILF as our investment choice, and we have captured some significant gains in the last couple of years, always reminding ourselves not to be greedy. Stay invested, but don't let this sector get too far ahead of itself.
I was pointing that just because a country is having high growth does not necessarily mean a good stock market performance in the short term. The experience of China, Brazil, India etc. are current evidence.
On the long term, the research paper says that due to frequent diluted effects of stock offerings even if the country is growing fast, it may not reflect in the per share prices. Over the long term, the returns are more likely to be around that of developed markets.
So, it is all about timing for stock prices. If you jump in at the correct time by luck or otherwise, you will get good returns. If you jump in at other times you can lose a lot in a short time. People are looking at the returns in last decade and in particular last 5 years and jumping in both feet. They may get disappointed.
The cheerleaders of emerging markets like to point out to only the positive developments and have a tendency of minimizing the challenges and big issues.
Corruption, unproductive uses of capital, environmental destruction, limited market depths and crazy expansion of credit, extremely bad distribution of income and high inflation are some of the land mines waiting to explode and the longer this rally goes the higher the risks become. All is not well out there.
Hello. I'm glad I checked back. I appreciate the conversation. Information is power. I like to depend on more than just my own inclinations when deciding what to do. I'm still in L.A. but only for 5% of portfolio total. I do believe some months ago that it was rono who offered that suggestion to me---to keep my stake low, in such a volatile sector/region. i just wish I was in back in '08!!! (PREMX) But I think the Fund Manager has not done badly, actually: Jose Costa Buck.
Comments
Last year China was growing just as fast as the previous year but its stock market was the worst in second half. Take a look at India this year.
Emerging markets stocks do not always follow fundamentals either. The market is shallow and speculators can swing it either way easily.
We enjoyed nice returns because we started with low valuations.
So that is a problem is when we have a research paper that is indeed valid but again they looked at like 80 year performances. That doesn't mean you can't pounce on EM opportunities when they are cheap and do well over 5, 10 or 15 years. Take your profits and enjoy.
Moreover, people don't realize the devil in the details. People often cite that the research paper concluded that the fastest growing GDP countries do not outperform the slowest group of countries. That is true but the difference wasn't all that large. Moreover, the research showed that it wasn't linear. Meaning, the fastest growing countries did outperform those in the middle of the growth pack.
So you have to be careful with plugging in a research paper into real life when the research paper looked at 80+ years and it also showed that the performance wasn't linear across slowest to high GDP growing countries.
So if you're sitting there thinking you're in good hands investing in lower or middle of the pack growing countries --- then you've completely missed the details of the research as well as wonderful EM returns the past 7+ years.
I personally have a lot of confidence in Latin America, but I also recognize there will be some bumps along the way. We use ILF as our investment choice, and we have captured some significant gains in the last couple of years, always reminding ourselves not to be greedy. Stay invested, but don't let this sector get too far ahead of itself.
On the long term, the research paper says that due to frequent diluted effects of stock offerings even if the country is growing fast, it may not reflect in the per share prices. Over the long term, the returns are more likely to be around that of developed markets.
So, it is all about timing for stock prices. If you jump in at the correct time by luck or otherwise, you will get good returns. If you jump in at other times you can lose a lot in a short time. People are looking at the returns in last decade and in particular last 5 years and jumping in both feet. They may get disappointed.
The cheerleaders of emerging markets like to point out to only the positive developments and have a tendency of minimizing the challenges and big issues.
Corruption, unproductive uses of capital, environmental destruction, limited market depths and crazy expansion of credit, extremely bad distribution of income and high inflation are some of the land mines waiting to explode and the longer this rally goes the higher the risks become. All is not well out there.