Fundamental Analysis in Emerging Markets

Although my Ocean Portfolio is based on the technical analysis, occasionally I do look at how the fundamentalists think about the stock markets. Apparently there are still opportunities in the Emerging Markets. Here is an article published (Jan 10, 2010) in SeekingAlpha.com by Hao Jin who is a Chartered Financial Analyst (CFA) and Certified Management Account (CMA).

"Forbes’s Fundamental Opportunity Index is based on the idea of value investing: buying underpriced, fundamentally sound stocks. Many people believe that emerging markets, which were up more than 70% in 2009, are likely to pull back, or at least take a breather in 2010. Nonetheless, there are still opportunities in those markets.

The most popular ETF to provide emerging markets diversification is iShares MSCI Emerging Markets Index Fund (EEM), which provides investment results that correspond to publicly traded securities in emerging markets.

Top 5 Countries within EEM

Country ETFs are another great way to find undervalued opportunities. Following are the top 5 countries and their ETFs within EEM:

Fund (Symbol)	Assets	P/E
MSCI Brazil Index Fund (EWZ)	$11.4B	25.3
MSCI South Korea Index Fund (EWY)	$3.1B	18.2
FTSE/Xinhua China 25 Index (FXI)	$10.3B	24.8
MSCI Taiwan Index Fund (EWT)	$3.7B	27.8
MSCI South Africa Index Fund (EZA)	$0.5B	17.5

Over the past decade China has spent massively on roads, bridges, ports and other infrastructure. Even though China's infrastructure is already superior to that of many other developing economies, it still continues to expand: now it focuses on high speed railroads and subway.

However, investors (especially people near retirement) face two main financial concerns – longevity risk and inflation. In order to boost your overall returns, emerging markets should remain 10%-20% of your long term portfolio."

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