Interesting article on emerging stock markets here. It mentions China
and India as expensive markets -especially, India- and South Korea,
Thailand and Malaysia as relatively cheap markets:

Don't Lose Your Shirt in Emerging Markets

http://biz.yahoo.com/ts/070208/10337498.html

On Feb 8, 8:16 am, Rich Carreiro <rlc...[at]animato.arlington.ma.uswrote:
- quote -

Agreed. Although in the top 10 list below, there are 4 semiconductor
companies. Not just tech in general, but semiconductors.

1. Gazprom OAO Depository Receipts

4.82%




2. Samsung Electronics Co Ltd Depository Receipts

4.81%




3. Taiwan Semiconductor Manufacturing Co Ltd Deposito

3.60%




4. POSCO Depository Receipts

2.92%




5. Kookmin Bank Depository Receipts

2.61%




6. LUKoil Neftyanaya kompaniya OAO Depository Receipt

2.25%




7. United Micro Electronics Corp Depository Receipts

2.10%




8. Siliconware Precision Industries Co Depository Rec

1.95%

9. Chunghwa Telecom Co Ltd Depository Receipts

1.94%




10. Korea Electric Power Corp Depository Receipts

1.91%

% of Total Holdings

28.91%

Looking at other portfolio parameters we have << comments in
brackets>

Expense Ratio

0.75

<< Ok-ish, reflecting an expensive asset class>

Net Assets

$ 15,694 mil


Alpha

0.51


R-Squared

0.53

<< Lots of idiosyncratic (non Beta) risk>
Dividend (Yield)

$1.57 (1.39%)

<< nothing too exciting>

Avg. Market Cap

$ 44,599 mil


Beta

1.92

<<< you are going to have a bumpy ride with that beta!>
Price/Earnings

16.22

<<< Ouch! Not cheap> >
Ex-Dividend Date

12/20/2006


Turnover

12.00


Standard Deviation

5.21


Price/Book

3.18

<<< See PE. Not cheap> >
<<< My overall take is that if someone wants a 5% portfolio exposure
to EM, not a bad way to do it. But I find it very hard to get bullish
about EMs at these multiples. Particularly in light of the overtly
speculative behaviour of investors in the Indian and Chinese markets.

More fundamentally, I have reservations about the structural policies
of the key BRIC countries:

- Russia - the large resource companies are doing well, so is the
State. Creeping renationalisation and the absence of deregulation for
smaller businesses makes me worry about the long term future,
especially if natural resource prices fall

- Brasil - the pace of reform seems to have slackened. They are
making money hand over fist on agriculture and resources, but the
country remains one where internal markets are fragmented, labour
markets are completely hamstrung and the government spends its
resources on over generous social provisions (without really helping
the poor)

- India - massive infrastructural problems which the government
doesn't seem to be able to tackle. Big political risks (farmers
burning themselves to death due to unpaid debt is how a lot of trouble
starts in history). Clear property/ stock market bubble going on.
Economic growth running way ahead of infrastructure. Highly
restrictive labour laws.

This shouldn't be taken to mean I don't think these countries aren't
going to grow (the US in 1880 had many similar pathologies), and grow
fast (ditto). Probably I am more bullish about China and India, and
less about Russia and Brasil, but that may simply be conventional
wisdom.

- quote -

those markets are lousy.

So the stocks aren't cheap, and you can't rely on management trying to
help you out.
- quote -

darkness39[at]yahoo.com writes:

- quote -

Well, EEM seems a bit more balanced. As of 30 Sep 2006, it was
17% in South Korea, 11% in Taiwan, 10% each in Brazil, Russia, China,
and South Africa, 8% in Mexico, 6% in India, and 4% in Israel.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

On Feb 7, 1:58 pm, beliav...[at]aol.com wrote:
- quote -

The only evidence I have is that letter from a Pimco VP, in the
Financial Times.

It provides a missing piece of the puzzle *but* I agree it would have
to be true.

On Feb 6, 3:14 pm, darknes...[at]yahoo.com wrote:

<snip
- quote -

Can you document this assertion? Central banks are not active players
in the
FX options markets AFAIK. Many nations have intervened at some point
in the
spot FX market -- Japan comes to mind.

On Tue, 6 Feb 2007 03:57:25 -0600, hh_online[at]mindspring.com wrote:

- quote -

http://www.marketwatch.com/news/stor...EA5D6411507%7D

On Feb 6, 8:19 pm, Tad Borek <bore...[at]pacbell.net> wrote:

- quote -

I agree. South Korea and Thailand are relatively good in this area
though. Both countries had IMF programs in the late 1990s, and one of
the main conditions of their programs was to improve financial and
stock market transparency and their accounting standards. They
received plenty of technical assistance from the IMF and the World
Bank these days, and most recommendations were implemented (I have
some first-hand knowledge of this because I was working at the IMF at
that time).

- quote -

I agree again. Some of these markets present good investment
opportunities though, albeit at the cost of a higher risk. That's
similar to what happens with the investment in small caps: they are
less liquid, but some of them -small cap value stocks- have greater
long term returns than other stocks, at the cost of a higher risk.

On Feb 6, 7:19 pm, Tad Borek <bore...[at]pacbell.net> wrote:
- quote -

As you imply, the *composition* of the index has a huge effect. For
example, banks and resource companies tend to trade at low P/B. The
UK has a very heavy weighting in financial. 4 sectors: pharma, banks,
oil and gas, mining account for something like 60% of the FTSE100
(although most funds index to the All-Share, which is somewhat
broader). 2 oil companies are 16% of the index (Shell and BP).

The biggest Mexican stock (by far) was Telefonos de Mexico, a company
which makes its money on the basis of its domination of Mexican
politics (which blocks new entrants into the telecoms sector, Mexico
has some of the world's highest phone rates).

I remember looking at an emerging markets ETF and concluding that it
was essentially a bet on Korean and Taiwanese tech companies.

https://flagship.vanguard.com/VGApp/...FundIntExt=INT

36% in Korean and Taiwanese stocks at the end of '05.


- quote -

It feels as if there is a real rush into emerging markets now.

I now have a good explanation of why risk is underpriced out there,
the product of an article by Gillian Tett of the Financial Times, and
a letter from Pimco published in the same issue.

http://www.ft.com/cms/s/c421f7b2-b26...0779e2340.html

http://www.ft.com/cms/s/582ce5bc-b26...0779e2340.html

Basically the story runs:

- everyone is borrowing in Japan, and investing in higher return
assets (the carry trade)

- they are hedging their exposure to a rise in Japanese currency,
using options. They can do this cheaply, because the Central Banks,
amongst others, are *selling* currency volatility, as an option
strategy.

So volatility is cheap, because there are structural players out there
selling it.

Jose Bailen wrote:
- quote -


One problem with looking at these metrics in emerging markets is that
many of these countries lack even basic accounting standards at the
business level, or standards for reporting those figures at the exchange
level. It's nothing at all like the US. It's been reported quite a bit
for China, which is beginning to adopt Western-style standards -- and
revealing some shaky foundations.

I've seen posts recently here with what look to me like very high
allocations to these markets, especially some that have run up a great
deal the past few years. I think it's worth looking at the market
capitalization (total value of traded shares) of these markets to put
them in perspective. For quite a few of them, you're talking about an
entire stock market with a market cap lower than many individual US
corporations. (grabs Economist Pocket World in Figures 2006...) With the
run-up these figures may be higher now but consider these 2003 numbers:

Thailand $119B - less than half the size of Citibank
Turkey $68B - a bit smaller than Apple
Egypt $27B - a bit larger than Starbuck's or Best Buy
Morocco $13B - a bit under Bed Bath & Beyond. For the whole market!

Oh and a few developed markets...
UK $2,412B
Japan $3,040B
US $14,266B

The notion of buying into a stock market whose entire market cap is that
of a mid-sized US company raises some questions about liquidity; these
are sort of the penny stocks of equity markets. Caveat emptor!

-Tad

On Feb 6, 10:57 am, hh_onl...[at]mindspring.com wrote:
- quote -

You may wish to take a look at the data first. These are the valuation
indicators for emerging markets as of end-2006:

http://www.globalindices.standardand...jsp&rp=returns

Looking at the average price-to-book value ratios (P/B) which is the
main indicator of how expensive a market is (high P/Bs usually imply
an overvalued markets), Argentina, Egypt, India, Mexico, Morocco, and
Nigeria have higher average P/Bs than the U.S. In particular, Egypt,
India and Nigeria were clearly overvalued (P/Bs above 4, versus an
average P/B of 3.05 for the US market). By contrast, Colombia,
Thailand, Turkey and Venezuela have all P/Bs below 2. In all these
cases, however, the low valuation comes at an expense of high risks,
in particular political risks, which in Thailand or Venezuela -Chavez
effect- are particularly high.

A relatively attractive market with less political risk is South
Korea's (a P/B of just 1.65). This is probably why Warren Buffett has
already started investing in this market. (the big risk in South Korea
is, of course, North Korean nukes).

In my opinion, an allocation of about 15 percent of your portfolio to
CAREFULLY chosen emerging markets makes perfect sense. If you are not
too worried about the potential risk of North Korean nukes on South
Korea or you think that Thailand's recent political problems are not
going to weigh too much in its stock market, these are probably the
two markets you should select for your emerging markets allocation.

On Feb 6, 9:57 am, hh_onl...[at]mindspring.com wrote:
- quote -

The bubble argument is a strong one. The PEs of stocks in India and
China are eye watering, and there is massive local speculation.

The basic indicator is that when the market starts to fall, the bubble
may be deflating. Emerging market bonds (the yield spread over US
Treasuries) may also be interesting in this regard (meaningless I
suspect in the case of China and Russia, but interesting in the case
of India and other markets).

More generally, keep an eye on the Yen: the fuel for the world's
speculative markets is the 'yen carry trade' ie borrowing in Yen and
investing elsewhere. So if the Yen starts to rise against the dollar
and the euro and/or the Bank of Japan raises interest rates, then that
situation starts to unwind.

The price of risky assets all over the world will start to rise
relative to 'safe' assets. This former includes property, high yield
bonds and emerging market equities.


- quote -

People who can predict the timing of such things either don't exist,
or are very, very rich. Neither is likely to post here ;-).

I have money in VEIEX - VANGUARD EMERGING MARKETS STOCK. I recently
read an article in which the 'expert' antcipated the run that
international emerging funds has had over the last couple of years to
end. He seemed to consider it a bubble. This goes against the notion
that i've had in my readings that China and India still have massive
untapped markets. What indicators should I keep my eye on in regards
to when to sell my holdings in that fund - the dollar's strength
overseas? maybe trends in other key international funds?

Obviously, I am sure there are other 'experts' that would contend that
the fund is likely to continue it's gains a bit longer, but I want to
educate myself in possible international indicators.

Thank you!
HH