The Emerging Markets "lost decade" is over

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Valuethinker
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Re: The Emerging Markets "lost decade" is over

Post by Valuethinker » Thu Sep 07, 2017 2:59 am

cantos wrote:
Wed Sep 06, 2017 9:18 pm
Valuethinker wrote:
Wed Sep 06, 2017 6:03 am
The Chinese route to success, of becoming the cheap offshoring point for world manufacturing, is therefore, in his analysis, a route that is closing for developing countries in the future.
Except that this is no longer the Chinese route to success. There is a huge drive toward alternative fuels in China. China is a country that thinks long term about its future - as an old civilization it tends not to be myopic and focus on short term gains. Furthermore, he political structure encourages long term thinking. If anything, your points favour investing in China.
Yes. But it means that ladder has been pulled up for the next round of countries. India in particular.

That said you are seeing Chinese manufacturing moving not just to the inland provinces (where the labour is cheaper) but also to Vietnam and other Asian countries.

China has a developed country's demographics. So the rise of the robots is less of a threat than it would be for most emerging market countries.

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Lauretta
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Re: The Emerging Markets "lost decade" is over

Post by Lauretta » Thu Sep 07, 2017 3:38 am

VictoriaF wrote:
Wed Sep 06, 2017 6:06 pm

You may be interested in this article:
"Are Some Countries More Honest than Others? Evidence from a Tax Compliance Experiment in Sweden and Italy"
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4823977/

From the abstract:
a team of researchers wrote:Exploiting a set of cross-cultural tax compliance experiments, we find that the average level of tax evasion (as a measure of ordinary dishonesty) does not differ significantly between Swedes and Italians. However, we also uncover differences in national “styles” of dishonesty.
Victoria
Wow this is really interesting thanks! :) :) I would not have predicted that!
I like what they say in the paper about 'the categorization of behavior is malleable rather than clear-cut' in Italy. Indeed we don't have a clear-cut, black-white vision of things: think for example of Leonardo da Vinci's sfumato :)
When everyone is thinking the same, no one is thinking at all

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nedsaid
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Re: The Emerging Markets "lost decade" is over

Post by nedsaid » Thu Sep 07, 2017 5:06 pm

CodeMaster wrote:
Wed Sep 06, 2017 10:26 am
Lemme share a story

Vietnam for example, is southeast asias FASTEST growing emerging market

say you wanted to import and sell adn try tap into their fast growing economy and get piece that pie..well to sell youll need get license fro that product.

in u.s. maybe youd go to the FDA official webiste and apply or whatever.. its all done properly and processed.

in vn, a foreigner from u.s might think thats howyou do it... goes online and applies PROPERLY , pays all fees....
nothign happens

in vn, why would a gov wanna go out his way to process you application. youll never get approved, that isnt how business is done

unless you perhaps know one of the gov officials, and provide a friendly "tip"

without contacts and knowing how to get around the Vietnam way, you got zero business. this is just one example...

now imagine how accurate their stock data is gonna be LOL

dont get me wrong, VN businesses are growing like mad... but stocks cant be trusted from emerging markets UNTIL they find anti corruption being more benefitial then maintaining corruption, like China did...
Very interesting. I am sure you are right about doing business in Third World countries. The thing is, John Templeton knew all of this and invested anyway. But yes, you have made a very good point and even though I like Emerging Markets, I don't overdo them in my portfolio. You can have too much of a good thing. In many respects, EM is a commodities play, and commodities haven't done well since about 2008.
A fool and his money are good for business.

Investor2055
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Re: The Emerging Markets "lost decade" is over

Post by Investor2055 » Sat Feb 17, 2018 8:13 pm

My current portfolio.

DOMESTIC LARGE CAP: 18.96%
DOMESTIC SMALL CAP: 11.25%
DEVELOPED EX-US LARGE CAP: 10.3%
DEVELOPED EX-US SMALL CAP: 13.02%
EMERGING/FRONTIER: 15.81%
HEALTHCARE: 14.89%
INTERNET: 9.94%

Just gonna sit back and watch this baby run for the next 40 years.

CodeMaster
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Re: The Emerging Markets "lost decade" is over

Post by CodeMaster » Sat Feb 17, 2018 9:05 pm

try crypto currency

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nisiprius
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Re: The Emerging Markets "lost decade" is over

Post by nisiprius » Sat Feb 17, 2018 9:42 pm

cantos wrote:
Wed Sep 06, 2017 9:18 pm
...China is a country that thinks long term about its future - as an old civilization it tends not to be myopic and focus on short term gains. Furthermore, he political structure encourages long term thinking. If anything, your points favour investing in China...
That's exactly what many in the U.S. were saying about Japan in the 1980s, very notably Michael Crichton in his xenophobic novel entitled Rising Sun. They are different from us (he didn't actually say "inscrutable"), their culture is older, they think in millennia and plan centuries ahead, they don't think short-term, etc. etc.
And the U.S. software industry was going to be quickly wiped out by Japanese "software factories."
Image
Last edited by nisiprius on Mon Feb 19, 2018 1:00 pm, edited 1 time in total.
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GratefulinNC
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Re: The Emerging Markets "lost decade" is over

Post by GratefulinNC » Sat Feb 17, 2018 9:58 pm

Investor2055 wrote:
Sat Feb 17, 2018 8:13 pm
My current portfolio.

DOMESTIC LARGE CAP: 18.96%
DOMESTIC SMALL CAP: 11.25%
DEVELOPED EX-US LARGE CAP: 10.3%
DEVELOPED EX-US SMALL CAP: 13.02%
EMERGING/FRONTIER: 15.81%
HEALTHCARE: 14.89%
INTERNET: 9.94%

Just gonna sit back and watch this baby run for the next 40 years.
Might want to rethink the internet inestments. There is a good chance the internet will be replaced by something else within the next 40 years.

Valuethinker
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Re: The Emerging Markets "lost decade" is over

Post by Valuethinker » Sun Feb 18, 2018 12:33 pm

GratefulinNC wrote:
Sat Feb 17, 2018 9:58 pm
Investor2055 wrote:
Sat Feb 17, 2018 8:13 pm
My current portfolio.

DOMESTIC LARGE CAP: 18.96%
DOMESTIC SMALL CAP: 11.25%
DEVELOPED EX-US LARGE CAP: 10.3%
DEVELOPED EX-US SMALL CAP: 13.02%
EMERGING/FRONTIER: 15.81%
HEALTHCARE: 14.89%
INTERNET: 9.94%

Just gonna sit back and watch this baby run for the next 40 years.
Might want to rethink the internet inestments. There is a good chance the internet will be replaced by something else within the next 40 years.
I would not suggest having sector investments, generally.

But I'd be surprised on the Internet. The Internet is c. 50 years old (can't remember the exact start date of ARPANET). The www is nearly 30 years old.

The thing is, when dominant designs & industry standards emerge, they don't change quickly.

Your electricity is inefficiently 110v AC -- ours is 220v AC. You (efficiently) use 60 Hz, we use 50 Hz (less efficient). Japan, believe it or not, has 2 grids with different standards (one American, one from Siemens).

These standards have held up for more than 100 years.

What I think you will get is fragmentation of the Internet. This has already started in places like Iran-- a separate internet walled off from the rest of the world. China is very definitely evolving that way. As various forms of malware etc. become more widespread, I expect more of these sorts of things to emerge, purely to preserve personal identity security, for example.

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unclescrooge
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Re: The Emerging Markets "lost decade" is over

Post by unclescrooge » Sun Feb 18, 2018 11:48 pm

CodeMaster wrote:
Wed Sep 06, 2017 10:23 am
snowman wrote:
Wed Sep 06, 2017 10:13 am
When I started investing in the mid-90s, I used to have similar thoughts, based on my own experience: most countries outside of US are not just corrupt, but extremely corrupt. Yes, the US is somewhat corrupt too, but in a very different way. I too thought there is no way I would invest in any of those countries.

I changed my mind around 2000-2002, during dot.com crash where I got burned by US tech stocks. I worked in hi-tech, knew the industry, knew the players, I thought I had sorted winners and losers pretty well. I was proven wrong. I realized personal experience means nothing in long-term investment game, nobody knows future, and the only thing we can do is to diversify.

So that's what I've been doing for the last 15+ years. Yes, I do own a slice of EM (used to be EEM, I swapped it for VWO when Vanguard introduced it some years back). It's a wild ride, always has been. I re-balance once a year. It's such a routine by now I don't even realize the pain of doing it. I think once you de-personalize your investment strategy (whatever it is) and are able to stick with it through thick and thin, you are good to go no matter what. It worked for me, and my guess is for most people on this site. It's the wabblers, or people who think they know more than the market (like I did years ago) that tend to get into repeated problems.
you def want internaitonal funds but jsut not em funds IMO

why would you ever want to invest in corruption riddled countries, i can go into all of those EM countries and bribe my wya to anything


china is set for rise sicn they fixed their corruption issue, some aweosme index and stocks i like to follow include

cweb
mchi
yinn
kweb
cqqq
BABA
you can bribe your way in the U.S. too. It's called lobbying, and it's legal.

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unclescrooge
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Re: The Emerging Markets "lost decade" is over

Post by unclescrooge » Sun Feb 18, 2018 11:51 pm

nedsaid wrote:
Thu Sep 07, 2017 5:06 pm
CodeMaster wrote:
Wed Sep 06, 2017 10:26 am
Lemme share a story

Vietnam for example, is southeast asias FASTEST growing emerging market

say you wanted to import and sell adn try tap into their fast growing economy and get piece that pie..well to sell youll need get license fro that product.

in u.s. maybe youd go to the FDA official webiste and apply or whatever.. its all done properly and processed.

in vn, a foreigner from u.s might think thats howyou do it... goes online and applies PROPERLY , pays all fees....
nothign happens

in vn, why would a gov wanna go out his way to process you application. youll never get approved, that isnt how business is done

unless you perhaps know one of the gov officials, and provide a friendly "tip"

without contacts and knowing how to get around the Vietnam way, you got zero business. this is just one example...

now imagine how accurate their stock data is gonna be LOL

dont get me wrong, VN businesses are growing like mad... but stocks cant be trusted from emerging markets UNTIL they find anti corruption being more benefitial then maintaining corruption, like China did...
Very interesting. I am sure you are right about doing business in Third World countries. The thing is, John Templeton knew all of this and invested anyway. But yes, you have made a very good point and even though I like Emerging Markets, I don't overdo them in my portfolio. You can have too much of a good thing. In many respects, EM is a commodities play, and commodities haven't done well since about 2008.
It doesn't have to be a commodity play. It can also be a technology play. Think of Samsung, Alibaba, tencent, etc.

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Noobvestor
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Re: The Emerging Markets "lost decade" is over

Post by Noobvestor » Mon Feb 19, 2018 12:39 am

CodeMaster wrote:
Wed Sep 06, 2017 6:35 am
Personally I would move away from any "emerging market" funds, not only has it gotten nowhere so long, but I think it will continue to go nowhere because emerging markets are corrupt so you dont ever get accurate anything and all their stocks are corrupt due to false numbers, data, bribary etc...

I do business in Asia and its all corrupt, briberys, false data, fake things... but they have their own of doing business and you can still grow as a business while all that is going on, but for stocks, I wouldnt ever bet anything on it since all data / numbers etc are going to be faked or corrupt in some way thus to me , you cant ever guage how anything is really ever doing, its a total loss emerging market IMO

:sharebeer
Fascinating analysis. Do you suppose the market knows this and has perhaps priced it in? Or is there just a free lunch in here somewhere?
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Noobvestor
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Re: The Emerging Markets "lost decade" is over

Post by Noobvestor » Mon Feb 19, 2018 12:50 am

SimpleGift wrote:
Wed Sep 06, 2017 9:11 pm
Top99% wrote:
Wed Sep 06, 2017 7:34 pm
As for Emerging markets suffering from corruption, I suspect the market knows that already.
Interesting to note the current statistics from Vanguard’s website below. Though emerging markets and the U.S. market currently have almost identical projected earnings growth rates and return-on-equity, the emerging markets fund has valuation ratios less than 75% of the U.S. fund.
  • Image
Appears to be a healthy discount for the added corruption risk, political risk, currency risk, and the like — though sector differences likely also contribute a bit to the valuation differences
Yup. I find the dissonance around here sometimes downright bizarre. I can't figure out how people seem to reconcile the following beliefs:
1) The market is efficient and I should index and diversify and not try to outsmart the market
2) I know better than the market how to effectively price economic, political and geographical risks
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

KLDome
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Re: The Emerging Markets "lost decade" is over

Post by KLDome » Mon Feb 19, 2018 10:18 am

Is investing in US based EM funds the same as "EM" ? Don't the US funds rise and fall mostly with the market despite what is going on in the real EM?

wije
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Re: The Emerging Markets "lost decade" is over

Post by wije » Mon Feb 19, 2018 11:06 am

nisiprius wrote:
Sat Feb 17, 2018 9:42 pm
cantos wrote:
Wed Sep 06, 2017 9:18 pm
...China is a country that thinks long term about its future - as an old civilization it tends not to be myopic and focus on short term gains. Furthermore, he political structure encourages long term thinking. If anything, your points favour investing in China...
That's exactly what many in the U.S. were saying about Japan in the 1980s, very notably Michael Crichton in his xenophobic novel entitled Rising Sun. They are different from us (he didn't actually say "inscrutable"), their culture is older, they think in millennia and plan centuries ahead, they don't think short-term, etc. etc.
According to this documentary, one of the main reasons the Japanese economy collapsed is that a new generation of Western-trained central bankers took over and upended the way things had been done before. In other words, their move to be less different from us precipitated their collapse.

Princes of the Yen: Central Bank Truth Documentary
https://www.youtube.com/watch?v=p5Ac7ap_MAY&t=2s

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Re: The Emerging Markets "lost decade" is over

Post by wije » Mon Feb 19, 2018 11:13 am

nedsaid wrote:
Thu Sep 07, 2017 5:06 pm
In many respects, EM is a commodities play, and commodities haven't done well since about 2008.
Not anymore.

Buy emerging markets for the growth, not the commodities
http://www.investmentnews.com/article/2 ... ommodities

Emerging Markets and Commodities - The Missing Link
http://www.columbiathreadneedleetf.com/ ... ssing-link

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walletless
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Re: The Emerging Markets "lost decade" is over

Post by walletless » Mon Feb 19, 2018 11:40 am

I guess I'll be an anomaly here. I'm currently at a 60/40 split between developed & emerging markets. I'm reducing it by 1% a year until I reach 82/18, so I can just switch to using total international at that point.

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nedsaid
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Re: The Emerging Markets "lost decade" is over

Post by nedsaid » Wed Feb 21, 2018 8:16 pm

Noobvestor wrote:
Mon Feb 19, 2018 12:39 am
CodeMaster wrote:
Wed Sep 06, 2017 6:35 am
Personally I would move away from any "emerging market" funds, not only has it gotten nowhere so long, but I think it will continue to go nowhere because emerging markets are corrupt so you dont ever get accurate anything and all their stocks are corrupt due to false numbers, data, bribary etc...

I do business in Asia and its all corrupt, briberys, false data, fake things... but they have their own of doing business and you can still grow as a business while all that is going on, but for stocks, I wouldnt ever bet anything on it since all data / numbers etc are going to be faked or corrupt in some way thus to me , you cant ever guage how anything is really ever doing, its a total loss emerging market IMO

:sharebeer
Fascinating analysis. Do you suppose the market knows this and has perhaps priced it in? Or is there just a free lunch in here somewhere?
I remember a Larry Swedroe article about this some time ago. Just as there seems to be a "sin" premium for "socially irresponsible" stocks, there also seems to be a corruption premium.

John Templeton was well aware of all of this back in the 1950's and he aggressively invested overseas anyways. He did find a lot of Value, particularly in Japan. He pioneered overseas investing here in the United States.
A fool and his money are good for business.

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nedsaid
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Re: The Emerging Markets "lost decade" is over

Post by nedsaid » Wed Feb 21, 2018 8:32 pm

wije wrote:
Mon Feb 19, 2018 11:13 am
nedsaid wrote:
Thu Sep 07, 2017 5:06 pm
In many respects, EM is a commodities play, and commodities haven't done well since about 2008.
Not anymore.

Buy emerging markets for the growth, not the commodities
http://www.investmentnews.com/article/2 ... ommodities

Emerging Markets and Commodities - The Missing Link
http://www.columbiathreadneedleetf.com/ ... ssing-link
Thank you for the links. One area of disagreement, China has a demographic problem, mainly from their one child policy. Their workforce is already starting to shrink.

Yes, I did notice that there is more and more technology from overseas. I put my portfolio through the Morningstar Stock Intersection feature last September and was amazed to see Samsung, Tencent, Alibaba, and Taiwan Semiconductor among my top 25 stocks. So maybe the Emerging Markets really have transitioned from Commodities to Tech.
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nedsaid
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Re: The Emerging Markets "lost decade" is over

Post by nedsaid » Wed Feb 21, 2018 8:34 pm

unclescrooge wrote:
Sun Feb 18, 2018 11:51 pm
It doesn't have to be a commodity play. It can also be a technology play. Think of Samsung, Alibaba, tencent, etc.
Funny, you mentioned that. Those three stocks showed up in my top 25 stocks when I used the Stock Intersection analysis tool at Morningstar. You have amazing psychic abilities!!
A fool and his money are good for business.

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Noobvestor
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Re: The Emerging Markets "lost decade" is over

Post by Noobvestor » Wed Feb 21, 2018 10:59 pm

nedsaid wrote:
Wed Feb 21, 2018 8:16 pm
Noobvestor wrote:
Mon Feb 19, 2018 12:39 am
CodeMaster wrote:
Wed Sep 06, 2017 6:35 am
Personally I would move away from any "emerging market" funds, not only has it gotten nowhere so long, but I think it will continue to go nowhere because emerging markets are corrupt so you dont ever get accurate anything and all their stocks are corrupt due to false numbers, data, bribary etc...

I do business in Asia and its all corrupt, briberys, false data, fake things... but they have their own of doing business and you can still grow as a business while all that is going on, but for stocks, I wouldnt ever bet anything on it since all data / numbers etc are going to be faked or corrupt in some way thus to me , you cant ever guage how anything is really ever doing, its a total loss emerging market IMO

:sharebeer
Fascinating analysis. Do you suppose the market knows this and has perhaps priced it in? Or is there just a free lunch in here somewhere?
I remember a Larry Swedroe article about this some time ago. Just as there seems to be a "sin" premium for "socially irresponsible" stocks, there also seems to be a corruption premium.
Found it! Fascinating stuff: http://www.etf.com/sections/index-inves ... nopaging=1

Some excerpts:
Interestingly, realized returns were higher for equity investments in jurisdictions that were more likely to be characterized by corrupt behaviors. As the authors note, the time period is short and the result might just be a lucky outcome.

On the other hand, it’s also logical to consider that investors will price for corruption risk and demand a premium for taking it. But it may also be a result of the same exclusionary factors found with sin stocks (investors boycott countries with high corruption scores, driving prices down, raising forward-looking return expectations).
... as more investors express their personal beliefs through their investments, shunning sin stocks, it seems likely their prices would be further depressed, further raising their forward-looking return expectations.

Thus, it is possible the sin stock premium (relative to the market) could not only persist, it could increase, and the investment and profitability factors may no longer be able to fully explain sin stocks’ returns.
On the flip side, though, I will say I naively hoped VICEX (which explicitly invests in 'sin stocks') might save me during the 08/09 downturn (pre-Boglehead days, didn't know what I was doing) and it performed pretty dismally.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

getrichslowly
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Re: The Emerging Markets "lost decade" is over

Post by getrichslowly » Wed Feb 21, 2018 11:51 pm

Lauretta wrote:
Wed Sep 06, 2017 2:01 am
I came across this interesting article on them yesterday
http://www.iijournals.com/doi/abs/10.39 ... 7.26.1.117
you need to register to download it, but basically it shows, based on past data, that there is an inverse relationship between present P/BV and future returns (as would be expected). However the curve for MSCI EM is much more scattered than that for MSCI World. Thus the 4 yrs subsequent returns starting from the present P/BV have varied between an annual loss of 8.8% and an annual gain of 36.9%. So I would overweigh it but not excessively... ;-)
Be careful. Read http://www.philosophicaleconomics.com/2 ... e-fitting/

Investor2055
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Re: The Emerging Markets "lost decade" is over

Post by Investor2055 » Thu Feb 22, 2018 8:23 am

Just bought some frontier markets funds as well. FM (Global X) and EMFM (Guggenheim). Great global exposure with my other funds VWO and DGS (Wisdomtree small cap emerging dividend).

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Re: The Emerging Markets "lost decade" is over

Post by bgf » Thu Feb 22, 2018 8:36 am

CodeMaster wrote:
Wed Sep 06, 2017 9:48 am
sambb wrote:
Wed Sep 06, 2017 9:41 am
CodeMaster wrote:
Wed Sep 06, 2017 6:35 am
Personally I would move away from any "emerging market" funds, not only has it gotten nowhere so long, but I think it will continue to go nowhere because emerging markets are corrupt so you dont ever get accurate anything and all their stocks are corrupt due to false numbers, data, bribary etc...

I do business in Asia and its all corrupt, briberys, false data, fake things... but they have their own of doing business and you can still grow as a business while all that is going on, but for stocks, I wouldnt ever bet anything on it since all data / numbers etc are going to be faked or corrupt in some way thus to me , you cant ever guage how anything is really ever doing, its a total loss emerging market IMO

:sharebeer
does corruption ever happen in the USA or other developed markets, or are they immune. I wonder.
yes but not as much as the EM... here if you do something wrong, you get in seirus trouble... FDA will come and shut your whole plant down. In Asia, its not so, you can bribe them off, you can buy licenses... corruption is COMMON and done by everyone.

In u.s. if your a man of power, like a congressman or something, you can get way with lot more and only the rich with power tend to do it..

your not gonna get stock data showing losses and gains by faking you way ... audits will happen adn if your caught your scrwed

in Vietnam, audits mean nothing...

Which is why you cant believe any of the stock reports from EM... there all messed up , how are you suppose to bet on it if you dont really know whats going on wiht the company
the US literally caused the global financial crisis, and it wasn't exactly all above board. i get what you are saying, but i dont see any of what you have said sufficient reason to avoid investing in china, taiwan, india, et al.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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Lauretta
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Re: The Emerging Markets "lost decade" is over

Post by Lauretta » Thu Feb 22, 2018 10:25 am

getrichslowly wrote:
Wed Feb 21, 2018 11:51 pm
Lauretta wrote:
Wed Sep 06, 2017 2:01 am
I came across this interesting article on them yesterday
http://www.iijournals.com/doi/abs/10.39 ... 7.26.1.117
you need to register to download it, but basically it shows, based on past data, that there is an inverse relationship between present P/BV and future returns (as would be expected). However the curve for MSCI EM is much more scattered than that for MSCI World. Thus the 4 yrs subsequent returns starting from the present P/BV have varied between an annual loss of 8.8% and an annual gain of 36.9%. So I would overweigh it but not excessively... ;-)
Be careful. Read http://www.philosophicaleconomics.com/2 ... e-fitting/
Thanks for the interesting link. I have gone through the article a bit quickly and will read it with more calm tonight, but I think that what he says is in agreement with the paper I quoted.
Low starting valuations generally tend point to higher returns. From the blog post:
If the purpose of the chart is to state what is already obvious, that lower present prices lead to higher future returns, all else equal, and that higher present prices lead to lower future returns, ell else equal–then fine, trivial claim accepted
It's only problematic if you want to make specific quantitative claims using valuations (which the paper doesn't, since as I wrote there's a wide range of possible outcomes starting from todays valuations in EM).
Anyway, thank you, it's an interesting blog, I also liked the other article relating future returns to the equity allocation relative to the norm. Don't know whether that works well for EM too, and if it does, what the equity allocation relative to norm for EM is at the moment. :confused
When everyone is thinking the same, no one is thinking at all

getrichslowly
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Re: The Emerging Markets "lost decade" is over

Post by getrichslowly » Fri Feb 23, 2018 6:47 pm

Lauretta wrote:
Thu Feb 22, 2018 10:25 am
getrichslowly wrote:
Wed Feb 21, 2018 11:51 pm
Lauretta wrote:
Wed Sep 06, 2017 2:01 am
I came across this interesting article on them yesterday
http://www.iijournals.com/doi/abs/10.39 ... 7.26.1.117
you need to register to download it, but basically it shows, based on past data, that there is an inverse relationship between present P/BV and future returns (as would be expected). However the curve for MSCI EM is much more scattered than that for MSCI World. Thus the 4 yrs subsequent returns starting from the present P/BV have varied between an annual loss of 8.8% and an annual gain of 36.9%. So I would overweigh it but not excessively... ;-)
Be careful. Read http://www.philosophicaleconomics.com/2 ... e-fitting/
Thanks for the interesting link. I have gone through the article a bit quickly and will read it with more calm tonight, but I think that what he says is in agreement with the paper I quoted.
Low starting valuations generally tend point to higher returns. From the blog post:
If the purpose of the chart is to state what is already obvious, that lower present prices lead to higher future returns, all else equal, and that higher present prices lead to lower future returns, ell else equal–then fine, trivial claim accepted
It's only problematic if you want to make specific quantitative claims using valuations (which the paper doesn't, since as I wrote there's a wide range of possible outcomes starting from todays valuations in EM).
Anyway, thank you, it's an interesting blog, I also liked the other article relating future returns to the equity allocation relative to the norm. Don't know whether that works well for EM too, and if it does, what the equity allocation relative to norm for EM is at the moment. :confused
My takeaway is that correlations between valuations (whether P/BV or P/E or CAPE10) will always be overstated since the price change shows up in both sides of the regression, making it tautological. Even if price movements were a pure random walk, with no dependence on valuations, a regression between return and valuation would show a strong link because a random price increase is always going to increase both the valuation and the return from the previously lower valuation. It is a tautology.

I'm not saying there is no link between valuations and returns, because by the simple logic of reinvesting dividends and buybacks at new inflated prices, there probably must be. But it's probably not the 0.92 correlation or whatever that is cited by data miners.

Theoretical
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Re: The Emerging Markets "lost decade" is over

Post by Theoretical » Fri Feb 23, 2018 8:15 pm

nedsaid wrote:
Wed Feb 21, 2018 8:16 pm
Noobvestor wrote:
Mon Feb 19, 2018 12:39 am
CodeMaster wrote:
Wed Sep 06, 2017 6:35 am
Personally I would move away from any "emerging market" funds, not only has it gotten nowhere so long, but I think it will continue to go nowhere because emerging markets are corrupt so you dont ever get accurate anything and all their stocks are corrupt due to false numbers, data, bribary etc...

I do business in Asia and its all corrupt, briberys, false data, fake things... but they have their own of doing business and you can still grow as a business while all that is going on, but for stocks, I wouldnt ever bet anything on it since all data / numbers etc are going to be faked or corrupt in some way thus to me , you cant ever guage how anything is really ever doing, its a total loss emerging market IMO

:sharebeer
Fascinating analysis. Do you suppose the market knows this and has perhaps priced it in? Or is there just a free lunch in here somewhere?
I remember a Larry Swedroe article about this some time ago. Just as there seems to be a "sin" premium for "socially irresponsible" stocks, there also seems to be a corruption premium.

John Templeton was well aware of all of this back in the 1950's and he aggressively invested overseas anyways. He did find a lot of Value, particularly in Japan. He pioneered overseas investing here in the United States.
The way I look at is that there's possibly a corruption premium but also that corruption/scandal is probably under-priced in Developed/US markets.

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Lauretta
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Re: The Emerging Markets "lost decade" is over

Post by Lauretta » Fri Feb 23, 2018 10:34 pm

getrichslowly wrote:
Fri Feb 23, 2018 6:47 pm

My takeaway is that correlations between valuations (whether P/BV or P/E or CAPE10) will always be overstated since the price change shows up in both sides of the regression, making it tautological. Even if price movements were a pure random walk, with no dependence on valuations, a regression between return and valuation would show a strong link because a random price increase is always going to increase both the valuation and the return from the previously lower valuation. It is a tautology.
Thanks. Yes probably the correlation will be overstated, though it seems to me that price change only shows up in the equation for returns, not in the one for valuations. It's not so much that when prices increase you have both a valuation increase and positive returns (because it's not the valuation increase that is used in the equation, it's just the current valuation). So my understanding is simply that based on current valuations you can have an idea of whether future returns will be large or small. This is also stated in the article here:
Roughly:

(1) Valuation Metric = Current Price / Variable

(2) Future Return = Future Price – Current Price

If future prices are inclined to rise at some rate over the long-term, then any time current price falls (and the same fall isn’t exactly mimicked way out in the future), (1) will go down, and (2) will go up. The valuation metric will fall, and the return–the distance between the future price and the current price–will rise. Hence the (inverse) correlation.
So my takeaway from (1) and (2) is that the lower the current valuation (relative to some historical average) the higher the returns, simply because of (2) (the change in price, say DeltaP, depends on the current price). In other words if you buy cheap you'll have higher returns (DeltaP) than if you buy expensive. It's not really a tautology to me, though it's pretty trivial.
That's all I'm interested in really. However since you mentioned random walk theory, you might find of interest this paper showing how the use of CAPE to predict future returns can be consistent with EMH
https://papers.ssrn.com/sol3/papers.cfm ... id=2876644
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Theoretical
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Re: The Emerging Markets "lost decade" is over

Post by Theoretical » Fri Feb 23, 2018 10:58 pm

Also, considering the scope of both Enron+ scandals and the grotesquely fraudulent housing bubble that nearly collapsed the global economy, I find it very curious how quickly we like to point fingers at other, even more corrupt markets.

Also, we too have petty or not so petty bribery in this country: it's just called an expedited processing fee and its depersonalized.

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Lauretta
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Re: The Emerging Markets "lost decade" is over

Post by Lauretta » Fri Feb 23, 2018 11:16 pm

Theoretical wrote:
Fri Feb 23, 2018 10:58 pm
Also, considering the scope of both Enron+ scandals and the grotesquely fraudulent housing bubble that nearly collapsed the global economy, I find it very curious how quickly we like to point fingers at other, even more corrupt markets.

Also, we too have petty or not so petty bribery in this country: it's just called an expedited processing fee and its depersonalized.
Yes I agree. My own country is part of the developed world, though as far as bribery and corruption are concerned it is probably quite 'competitive' (so to speak) with EM :wink:
But having lived in a number of developed countries I found that each had their measure of dishonest dealings - it's just that it is done differently in each, depending on the culture.
I really think that the idea that other countries are more corrupt that one's own is much more based on lack of familiarity than on an objective assessment.
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Re: The Emerging Markets "lost decade" is over

Post by MossySF » Sat Feb 24, 2018 12:32 am

Corruption is a big problem if you are trying to make individual small investments or start/do business in those countries. If you're just taking the entire market, corruption is priced already.

Now if you have moral issues investing in some of these countries, that's a perfectly valid reason.

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privatefarmer
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Re: The Emerging Markets "lost decade" is over

Post by privatefarmer » Sat Feb 24, 2018 3:23 am

CodeMaster wrote:
Wed Sep 06, 2017 9:29 am
asif408 wrote:
Wed Sep 06, 2017 8:08 am
AlohaJoe wrote:
Wed Sep 06, 2017 1:53 am
Over the next few months we should start seeing more posts about people overweighting EM again ;)
I'm still seeing a lot of "Do I need international stocks" and "USA!, USA!" type posts, so I think we're still a few years away from that being outweighed by the "How about I overweight EM" posts. When that happens I will start to reduce my EM holdings. And when the posts start for "How about 100% EM", I will sell all my EM :D
You need international stocks, just not EM stocks
lots of negativity towards EM on this thread...

1) the risk of corruption etc. is not just in EM stocks. Look at our current president. Corruption can happen anywhere. If it is more likely to occur in EM then it likely has already been priced into the stock price.

2) EM's have been less correlated w/ domestic stocks as compared to developed markets. For example, DFAs EM fund DEMSX has been only 60% correlated w/ it's domestic small-value fund, providing some diversification benefit. Developed markets have ~90% correlation with domestic stocks. If you're seeking diversification, I think you'll get more via EM vs developed.

3) Of course EM are more volatile/risky. But if you want return you have to take on risk, otherwise put everything into treasury bills.

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Re: The Emerging Markets "lost decade" is over

Post by Glockenspiel » Sat Feb 24, 2018 10:11 am

sambb wrote:
Wed Sep 06, 2017 9:41 am
CodeMaster wrote:
Wed Sep 06, 2017 6:35 am
Personally I would move away from any "emerging market" funds, not only has it gotten nowhere so long, but I think it will continue to go nowhere because emerging markets are corrupt so you dont ever get accurate anything and all their stocks are corrupt due to false numbers, data, bribary etc...

I do business in Asia and its all corrupt, briberys, false data, fake things... but they have their own of doing business and you can still grow as a business while all that is going on, but for stocks, I wouldnt ever bet anything on it since all data / numbers etc are going to be faked or corrupt in some way thus to me , you cant ever guage how anything is really ever doing, its a total loss emerging market IMO

:sharebeer
does corruption ever happen in the USA or other developed markets, or are they immune. I wonder.
Lol. Does corruption ever happen in the USA?

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