From global momentum to global value

The recent pullback in international and emerging markets dampens momentum but highlights the need to search for value across the globe.

According to data from Emerging Portfolio Research, international money managers, who have invested an average of $1.6 billion in emerging markets each week this year, invested just $43 million in the week ending May 17.

Clearly, at least temporarily, momentum is going the other way, so you need to stop losses to lock in your profits.

But this long anticipated pullback may be a boon for global investors as some of the valuations were out of control. For example, India’s SENSEX index traded in multiples in high adolescence.

The selloffs are certainly making for some attractive value plays as markets soar lower. We have identified nine countries that seem attractive.

One is Sweden (EWD) with a market trading at less than twelve times earnings.

The Swedish economy is unusually well diversified and fueled by commodities such as iron ore and timber, world-class companies in telecommunications (Ericsson), automobiles (Volvo) and pharmaceuticals (Astra). Its nine million citizens are recognized for their high educational standards and global outlook. 45% of Sweden’s GDP comes from exports.

One of the cheapest markets in the world is Thailand, with its SET index trading at just over seven times earnings. With an area more than twice the size of Wyoming, Thailand is a strong young middle-income country with a consumer-oriented middle class. Its economy is well diversified, rich in natural resources, and has a dynamic manufacturing sector and strong exports.

It is true that the political situation in Thailand is murky. The courts ruled that the April parliamentary elections were invalid and called for the scheduling of new elections. The electoral commissioners resist. The result is a political limbo.

But this unfortunate situation will not last forever and the symbolically powerful King of Thailand, Bhumibol Aduljadej, who has presided over Thailand since 1946, will likely be forced to actively intervene to end the stalemate.

History shows that the Thai market is resilient and explosive. Thailand’s benchmark index rose 115% in 2003.

I suggest investors use the closed-end Thai Fund (TF) managed by Daiwa Securities, which is trading at a 2% discount to its NAV.

The recent pullback in international and emerging markets dampens momentum but highlights the need to search for value across the globe.