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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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Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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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  

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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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.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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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.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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ETN Play: Bullish on India

Over the past month, I’ve maintained a bullish stance and have recommended that readers put their trading capital to work in some of the world’s more speculative markets (see “ECB Could Trigger Monster Rally in Spanish Stocks” and “Access Africa”).

Today, I’m going to reiterate my position that, in the age of competitive quantitative easing by the world’s central bankers, it makes sense to err on the side of bullishness.

The domestic news here in the United States continues to be lukewarm at best, China continues to revise its growth estimates downward, and the European Union is probably in outright recession.  But over the next several months, I do not expect any of this news to have much of an effect on global markets.  Bernanke, Draghi & Company have awakened the long-sleeping animal spirits in investors, and “Big Money” hedge fund managers and institutional investors are frantically trying to catch up to their benchmarks before the end of the year (according to Barron’s, the average equity-focused hedge fund has had a return barely half that of the passive S&P 500 in 2012).

This stimulus-fueled rally will eventually end, and when it does I expect it to end poorly.  But until we see signs of a real breakdown, it makes sense to maintain a bullish allocation.  I expect corrections—when they come—to consist of sideways action and not steep declines.  This has been the case for much of the past two weeks.

This week, I recommend investors take a look at India via the iPath MSCI India Index ETN ($INP).

India is generating a lot of buzz in recent weeks due to the proposed economic reforms of prime minister Manmohan Singh.  These reforms—which are needed for long-term growth—may or may not actually come to pass.  But in the short term, just the possibility is enough to restore some much needed confidence in the Indian market.

The usual caveats apply here; while I am bullish on emerging markets right now, sentiment can turn on a dime if Europe slides back into crisis.  Use a stop loss appropriate for your risk tolerance.

Disclosures: Sizemore Capital has no position in any security mentioned in this article. This article first appeared on TraderPlanet.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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