VIDEO: Greece Downgraded to “Emerging Market”

Earlier this week, I wrote that Greece had been downgraded by MSCI from “developed economy” to “emerging market.”  In this video, I dig into the details and explain what this means for investors.

The point to take away is that your emerging market ETF or mutual fund may not be invested in the countries you expect.  It may be loaded down with already mature countries such as Taiwan or South Korea…or with basket cases like Greece.

Before you buy an emerging market ETF or fund, go to a financial website such as Yahoo Finance or visit the fund’s website to take a look under the hood.  Nearly all ETFs and mutual funds provide easy viewing access to their holdings.

See also: Greece Downgraded to “Emerging Market.” But Will It Ever Emerge?

Turkey: A Reminder that Emerging Markets are Not Always Warm and Fuzzy

When you hear a mention of Turkey, it conjures up certain mental images.  The Aya Sofya in Istanbul…ships passing through the Bosphorus…mustachioed men selling doner kebabs out of pushcarts.

And, unfortunately, military coups d’état and baton-wielding riot police.

Turkey has become a little softer around the edges over the past decade as economic growth and political reform have made the country more Western in many respects.  And investors had begun to notice.

In May of this year, Turkey was upgraded to “investment grade” by Moody’s, the ratings agency, and up until recently the country was enjoying “China-like” growth rates in the high single digits.  Investors had begun to lose interest in the high-profile “BRICs” countries and had started looking elsewhere for growth, and Turkey seemed a fine destination.

From January of 2012 to the recent high in May of this year, the Turkish stock market was up by more than 80%.  And this is even more noteworthy when you consider that the European Union—Turkey’s most important trading partner—has been mired in recession and crisis for most of that time.

And then it all came crashing to a halt.  From its May 22 high, the Turkish market is down nearly 20% and the iShares MSCI Turkey ETF ($TUR)—the primary vehicle for most American investors to get access to the Turkish market—is down further.

What happened?  A series of riots broke out across the country demanding that a popular park be spared from development, and the prime minister—who, though controversial, has up until now been broadly popular—reacted the way you might have expected a Turkish general of old to react: with crushing force.

Fearing political instability and a return to Turkey’s chaotic past, investors dumped their shares and fled the Turkish markets.

So what now?  After the bloodletting, are Turkish stocks attractive again?

I would like to say yes.  Even after their spectacular gains of recent years, Turkish stocks are among the cheapest in the world, trading at just 10 times earnings.  You would have to go to neighboring Greece or to places not known for being friendly to investors—think Argentina or Russia—to find cheaper.

Yet you don’t want to try to catch a falling knife.  If the hot money has decided that the Turkish “story” is over, then it will take them time to unwind their positions and move on, which will mean more downside pressure in the near term.

I, for one, still like the Turkish growth story, and I expect that 6 months from now these riots will be a distant memory.  But I sold my shares of TUR and I do not intend to buy them back until the dust settles.

Action to take: Put TUR on your watch list.  This is a great long-term growth play.  But wait until prices have stabilized to buy.   Alternatively, you can take a play out of John Templeton’s playbook and place GTC limit orders at prices far below today’s market price.  That way, if the market gets pushed temporarily lower due to panic selling, you can snag shares on the cheap.

This article first appeared on TraderPlanet.

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Are Indian Stocks a Buy ?

In terms of generating raw frustration among investors, India is a hard country to beat.  It has the second-largest population in the world, but unlike number one China, it also has a young, English-speaking workforce.  The country has a large and successful diaspora scattered across the globe and old trade ties that date back to the British Empire.  It’s democratic…and has an Anglo-Saxon common law legal system.

I could go on all day, but it wouldn’t matter.  Despite all of India’s selling points, the country can’t seem to get out of its own way.   Since independence from Britain, India’s economic growth has so badly trailed that of China and several other East Asian economies that economists derisively called it the “Hindu rate of growth.”  In the early days of the Indian republic, the country copied the worst aspects of British bureaucracy and Soviet central planning and melded the two into a unique Indian “self sufficiency” model that virtually guaranteed economic stagnation.

Even in more recent times, India has appeared downright hostile to foreign investment.  Earlier this year, India’s Supreme Court invalidated the licenses of several foreign telecom operators.  The Court claimed—and probably with justification—that the licenses were granted illegally by a corrupt government minister, but the incident made many Western firms rethink their decision to invest in India.  A deal isn’t a deal there.

Some of India’s “wins” are actually losses in disguise.  For example, India has embraced the information revolution better than any other major emerging market and has used the falling price of communications to create a thriving outsourced services sector.  But one of the reasons that India was so quick to jump into the information revolution is that the country’s “old economy” infrastructure (everything from roads to its sewage system) is so horrendously bad that competition with China in manufacturing is an impossibility—even though Indian wages are significantly cheaper than Chinese wages.

I give credit to India’s entrepreneurs.  They operate in an environment that would cause most Western businessmen to lose their hair or drop dead of a heart attack as they look for creative ways to leapfrog the regulatory monster known as the Indian state.

But lest anyone think that I am a perma-bear on India, not all news is bad.  Prime Minister Manmohan Singh appears to have rediscovered the reforming zeal of his earlier years and has pushed through a much-needed reform of the Indian retail sector.  He tried opening the retail sector to foreign retailers once before, only to back down at the first sign of protest. Perhaps the prime minister has rediscovered his backbone as well as his talent for economic reform.

Investors have taken note.  Indian stocks, measured here by the iPath India Index ETN (NYSE: $INP) have spent most of the past two years in a bear market but have had a nice run since late November.

Are Indian stocks a buy at current prices?  That’s harder to say.  At 17 times earnings see (FT estimates), Indian stocks are far from cheap, particularly when you compare them to Chinese and other emerging market averages.  Chinese stocks are trading hands for just 8 times earnings, and Brazilian stocks just 14.

It’s hard to get wildly enthusiastic about Indian stocks based on valuations, but that doesn’t mean that they can’t have a nice run as investors rediscover the joys of emerging markets.  I’m bullish on emerging markets in general over the next 6-12 months, and I expect to see India participate in the rally.

Just don’t fall in love with Indian stocks, or they will break your heart.  If you decide to buy India, use a trailing stop to lock in your profits for the next time the Indian government does something characteristically impulsive and causes investors to lose interest again.

Disclosures: Sizemore Capital has no positions in any security mentioned. This article first appeared on InvestorPlace  

China’s GDP: A High-Quality Problem

China has what I like to call a “high quality problem.”

The Chinese economy grew by 7.4 percent in the third quarter.  This was the country’s worst quarter since early 2009, but it was in line with market expectations.

Only in China would 7.4% growth constitute a severe slowdown.  I don’t have to tell you that this is far above the growth rates of any other country of any real size.  China may not be growing like it used to, but it’s still the best show in town among major world markets.

Sentiment on China remains awful—just this past week, Coca-Cola (KO) joined the long list of Western firms blaming lackluster growth on the Chinese slowdown—but the data is mixed and showing signs of life.   Releases o n fixed asset investment, retail sales and industrial output all beat expectations.

All of this rotten sentiment has translated into some pretty horrendous stock returns for Chinese investors.  Chinese stocks have been in almost continuous decline for the past two years—at least up until last month.

I recommend investors take a look at the iShares FTSE China 25 Index ETF ($FXI).  I like what I see here.  Chinese stocks appear to be starting a new uptrend, even while sentiment towards them remains terrible.

If the Chinese economy maybe—just maybe—doesn’t end up being as sick as everyone seems to think it is and we see some signs of life in the next few months, sentiment can shift if a hurry.  And when it does, I expect FXI to enjoy a quick boost.

7.4% growth in a slow-growth world isn’t half bad, and eventually investors will reach the same conclusion.  In the meantime, we’re getting access to an index that trades at 8 times earnings and yields 2.7% in dividends.  Not too shabby indeed.

This article first appeared on TraderPlanet.  Sizemore Capital currently has no positions in any securities mentioned.

It’s Time to Go Beyond BRICs

In recent weeks, I’ve urged readers to maintain positions in some of the potentially most volatile markets in the world, including emerging markets (see “Bullish on India” and “Access to Africa”) and crisis-wracked countries such as Spain (see “ECB Could Trigger Monster Rally in Spanish Stocks”).

My rationale was simple enough.  In a market being goosed by the largest coordinated central bank easing in history, it makes sense to err on the side of bullishness.  Unless you see strong evidence of a market breakdown, you want to be invested, and preferably in the most speculative sectors .  This is not a trend you want to fight.

Yes, the global economy is slowing, the United States faces a fiscal cliff, and the dithering of European politicians over the past two years has done damage to investor confidence that will likely take years to fix (if fixing it is even a possibility at this point).  All of these are major headwinds to a sustained bull market, and there will eventually be hell to pay.  But that day is not today.

Today, I recommend that investors snap up shares of the EGShares Beyond BRICs ETF ($BBRC).

This new ETF by EG Shares invests in promising emerging markets excluding the BRIC countries of India—which I recommended separately—and Brazil, China, and Russia, which have all lagged this year. Instead, it holds 50 stocks from a variety of other promising emerging markets that have attracted less hype, such as Chile, Colombia, Czech Republic, Egypt, Hungary, Indonesia, Malaysia, Morocco, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey.

If world markets continue to rally throughout the quarter, BBRC should be a top performer.

A word of warning: BBRC is a new ETF and is thinly traded.  DO NOT place market orders on this security; use a limit order, and keep your positions to a relatively modest size.

This article first appeared on TraderPlanet.