The BRICs are out-of-style. Brazil, Russia, India and China are
already yesterday's investing theme. And as it becomes increasingly
apparent that the United States and Europe will be
growth-constrained in the near future, investors are now checking
out a new bloc of emerging economies called the CIVETS (Colombia,
Indonesia, Vietnam, Egypt, Turkey and South Africa).
Growth in these countries has started to catch the attention of
globally-focused money managers and, conveniently, there is an
exchange-traded fund (
focusing on each country that allows individual investors to own a
piece. The question is, are these countries suitable for your
Looking under the hood
Over the years, I have had the good fortune to travel extensively
and have brought back a few investing perspectives from my trips to
Colombia, Indonesia, Vietnam, Egypt and Turkey (I've never been to
South Africa). And after consulting with
, our resident
, here are my cursory thoughts:
I was extremely impressed by this country during my visit in 2007.
It is blessed with a low-cost but hard-working labor force, an
increasingly strong transportation infrastructure, a domestic
population of 88 million (larger than any country in Europe) ripe
for a burgeoning middle class, and fairly impressive offshore oil
and gas deposits. In fact, on that trip, I found Vietnam to be
organized and efficient compared to my trip to the seeming
hurly-burly of China, which seemed to be choking on growth at every
turn. At the time of my trip,
Intel (Nasdaq: INTC)
and other tech firms were starting to build large factories to tap
into Vietnam's' labor pool.
Three years after my trip, Vietnam has unfortunately been beset by
a range of problems, most notably stubbornly high
of 9%, trade deficits, an -8% government budget
and a government that seems ill-equipped to handle the transition
from communism to
. On this front, Chinese planners now look far savvier. Vietnam has
been forced to
in the face of its trade and inflation problems.
Yet Vietnam's future is quite bright once it tackles these
problems. Tourism revenue is surging and Vietnam could easily catch
up to Thailand as the go-to destination for Southeast Asia
beachgoers. Secondly, wages in China are starting to rise, and
Vietnam is steadily taking its share of new Western manufacturing
plants. Finally, a middle class is really starting to emerge,
especially as ex-nationals residing in North America and France
return with plenty of money to invest.
Market Vectors Vietnam ETF (
hovers near a 52-week low, due to the reasons noted above. But a
stumble should have been expected. After all, Vietnam's
had seen a remarkable run during the past decade that helped fuel a
+400% jump in per capita disposable income. The current growing
pains are solvable, and I am firm believer that Vietnam's prospects
remain very bright and this ETF will stage a robust rebound after
the current negative economic issues have passed.
In the spirit of diplomacy, I will simply say that Egypt faces
major challenges, most notably a very poor infrastructure and a
fast-growing yet under-employed population, the majority of which
is under 25 years old. It's hard to see how Egypt can generate high
rates of job growth that will bring down its high
, especially with the government's track record of ineffectual
policies. My experience in Cairo revealed a city that was cratering
under the weight of a groaning population.
Egypt will have new leadership in the next year. If it is a crony
or the son of current President Hosni Mubarak, then the situation
is unlikely to change. But if Mohammed El-Baradai, the
well-regarded nuclear arms inspector, is elected (which is
admittedly a long-shot), then sound government practices may get
put into place. The
Market Vectors Egypt Index (Nasdaq: EGPT)
would ultimately be the way to play such a
, but it is too thinly-traded for most investors to consider it at
First of all, it's hard to ignore Indonesia's size (243 million).
The government has apparently been effective in finally tackling
corruption and nepotism and the economy is growing at a strong
pace. But I have little first-hand insight into Indonesia's
prospects, so I turned to Nathan Slaughter, editor of
newsletter, for insight. Nathan has been following developments in
this country for some time now, and is quite bullish about its
Here's what he told his
subscribers in May:
"...some of the biggest beneficiaries of China's juggernaut economy
are found well outside the country's borders. Many smaller
neighbors in the Association of Southeast Asian Nations (ASEAN) are
being pulled into China's orbit. With the landmark ASEAN-China Free
Trade Agreement taking effect this past January, it's now easier
than ever for foreign producers to get their products in the hands
of Chinese consumers and businesses."
The Market Vectors Indonesia ETF (
has had a strong run and hovers near an all-time high. (Nathan has
also identified a
that he highly recommends.
Go here to learn more
about Nathan's picks.)
My 2009 visit to Istanbul, Turkey left me very impressed. I was not
expecting to find such a highly-developed economy, highlighted by
very strong banking, tourism and manufacturing sectors. Turkey has
established itself as a global trading powerhouse in the past two
decades, and concerns that a new government that is less pliable to
Western interests would hurt economic prospects are unfounded.
Turkey's religious class is feuding with its secular class, and
some are concerned that it could spiral into a more aggressive
internal dispute -- always a bad thing for stock markets. But that
possibility still appears remote.
Turkey is possibly the most advantageously-situated country in the
world, just steps away from Southern Europe, central Asia, Russia
and the Middle East. As a result, the country is boosting trade in
virtually every direction. Turkey's industrial output is up +15%
from a year ago. Few countries in the world can say that right now.
As Turkey's trading partners get back on their feet, Turkey's
low-cost but very efficient industrial sector could emerge as the
backbone of the region, much as German factories export across
iShares Trust MSCI Turkey ETF (
is up more than +15% year-to-date, but in the context of the
country's long-term growth prospects, that advance should mean
little to investors. Equally important, Turkey's economy and stock
market are increasingly de-coupled from the West, so any hiccups in
the United States and Europe aren't likely to be felt as severely
with this ETF.
I've saved the best for last. After numerous trips to Argentina and
Chile over the years, I had been led to believe that Colombia was a
relative backwater. Instead, I found Bogota, the capital city, to
be remarkably dynamic, the national infrastructure outside of the
major cities to be very well-developed, and most importantly, the
country's large middle class to be very savvy. Colombia is also
sitting on a vast set of natural resources and is becoming an
export powerhouse in everything from cut flowers to oil to gold.
But the secret is out. The country's stock market has tripled
during the past 18 months. Much of that gain is due to an ongoing
peace dividend that has come from the sharp reduction in violence.
So whether you should buy into the
Global X/InterBolsa FTSE Columbia (
ETF depends on your time horizon. The
appears ripe for profit-taking, and investors may still be spooked
by another round of violence between the government and guerillas.
But over the long-term, it's hard to understate just how many
strengths this country has. I'm very bullish on Latin America more
broadly, thanks to rising incomes in Brazil, Chile and elsewhere.
Colombia can count on robust trade flows with those countries well
into the future.
Action to Take -->
Gone are the days when these countries were characterized by high
inflation, non-transparent stock markets and inept governments.
Colombia is blessed with vast resources and a dynamic middle class,
Turkey is poised to be the trading partner to the world, and
Vietnam can count on very low labor costs and rising tourism and
manufacturing sectors. All three of these countries are very
appealing, and look like true buy-and-hold opportunities.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.