uwd0012 emerging market opportunities report

8/7/2019 UWD0012 Emerging Market Opportunities Report

1/8


2/8

October 10, 2010 Special Report Page 1

Special ReportFinding Emerging Market OpportunitiesNovember, 2010

Six Emerging MarketOpportunities

By Rudy Martin, Director of Research,www.LatinCapitalMarket.com

Dear Investor,

Emerging markets continue to present attractive opportunities. And now I see a once-in-a-lifetimechance to apply the best long-term investing practices Ive learned over the past 30 years as a moneymanager to generate more growth and higher yields.

So let me give you my Six Emerging Market Opportunities, withinsights about thetransformations occurring in Latin America that could put you on the path to financial freedom.

Emerging Market Opportunity #1 New wealth not Made in the USA

The latest Forbes poll of billionaires gives theworld's richest title to Carlos Slim Helu, theMexican tycoon behind the telecommunicationsgiant, America Movil (NYSE:AMX) and a

significant investor in other major companiesincluding TheNew York Times (Nasdaq:NYT).

He made his wealth from the huge boom inconsumer demand for telecommunications andmedia in Mexico, Brazil and elsewhere in SouthAmerica.

Last year, Carlos Slim lent The New York Times$250 million and received warrants which arenow in the money by a cool $75 million.

And recently Slim proposed selling his interest inthe slightly under-funded Telmex (NYSE:TMX)and Telmex International (NYSE:TII) to AmericaMovil. This was a big plus for AMX, whichbecame a full-service provider of wireless,broadband and video services.

For Carlos it consolidated his control of themedia sector into one higher-valuation publiccompany. That's value investing at its finest.

Latin America is indeed the investment story ofthis decade:

Recently, Fitch upgraded Panama's bond ratingto investment grade, the first among the majorU.S. rating agencies to do so. It mentionedsustained improvement in public finances, taxreforms that are expected to add 1.5% to 2% ofadditional revenue to that country's GDP andPanama's resilience to an economic downturn.

Further south, Chile announced a $30 billioninfrastructure program to rebuild from thedevastating earthquakes. This is another shot inthe arm for an already strong economy. AChilean exchange traded fund (ETF), one of myrecommendations, is up 55% in just six monthsthis year!

But the gold medal for economic rebound goesto Brazil. It now ranks 6th in the world withforeign exchange and gold reserves of more than$277 billion at the end of September 2010. TheBrazilians have more reserves than the next fourlargest Latin American countries combined.They also have more reserves than the Swiss,Germans or even the United States.

This wealth has unleashed a consumer buyingbinge in Brazil. For example, last quarter,Carlos Slims America Movil added 6.6 million


3/8



wireless phone subscribers. A third of thesewere from Brazil.

Fortunately, you don't have to be a well-fundedbillionaire like Carlos Slim to pick off a fewweakened international companies at lowprices.

There are also tools, such as ETFs, that help youinvest in areas that would normally be closedoff to individual investors.

Emerging Market Opportunity #2 Catch the trillion-dollar global infrastructureboom

There is a new category of ETFs that focus oninfrastructure investing basically companiesthat benefit from large, longer termconstruction projects. One aims at China, theother focuses on Brazil and the third coversIndia.

These three countries have the need to attractcapital and build the transportation, telecom,technology and energy support systems for theirgrowing populations.

If you consider the size of the undertaking intheir respective geographic regions and thecapital required to accomplish this, what weretalking about here will require TRILLIONS ofdollars!

Just a year ago, an analysis by CIBC WorldMarkets predicted worldwide governmentspending on public works projects would total$35 trillion over the next 20 years. By themiddle of 2009, a number of analysts reviewing projected demands in the commodityand raw materials markets had raised thatforecast to $40 trillion, with nearly $4 trillion ofthat coming in 2010 and 2011 alone.

Already, a massive building boom is occurring inemerging markets as countries build roads,bridges and ports to connect their new mega-cities and to facilitate shipment to places likeChina.

In Latin America a lot of this China-bound trafficgoes through Panama, which is undergoing amassive $5 billion expansion of the Canal. And

Panama is not the only country to see the valuein having better ports.

Mexicos government announced a spending planworth $50 billion in 2008. The flagship project isPunta Colonet, a $5 billion project to build amassive port in Mexicos Baja California. Thegoal is to rival the strategically-important LongBeach, California port.

Other countries are building like crazy, too ...

Brazil is working feverishly to reduce thelogistical bottlenecks associated with significantcongestion at the major seaports and the poorcondition of its railroads and highways. Thesethreaten Brazil's continued competitiveness andeconomic growth.

Then there is the Internet ...

In developed countries, we take the impact ofthe Internet for granted.

Indeed, during the last few years media andshopping have gone online with dramatic force.Consider that in the U.S. $155 billion was spenton local advertising in 2009. If half of thatmoves to internet advertising, imagine the boomwe are talking about just in the U.S.!

Now add in the emerging world with the billions

of people in China, India, and Brazil andelsewhere who are adopting the Internet, andthis media migration idea really takes wings.

One very smart management team in LatinAmerica has figured out how to create a uniquecompany with both content and technology. Itsmarrying up a broadband/mobile distributionsystem with a full content creation complex.One day this is likely to be considered the hotgrowth stock to have bought into.

The last part of this infrastructure boom is

probably the largest component ...

The emerging countries accelerated growthrate means theyll need a steady increase inenergy supply, including oil, gas, electricity andalternative energy.

Emerging Market Opportunity #3


4/8



The new commodities super cycle bringswealth to the emerging world

According to TheWall Street Journal, China hasjust passed the U.S. to become the world's #1consumer of oil.

So the Chinese have become very serious aboutoil. And this has major implications that couldgreatly affect the price of oil, gold and otherworld currencies in the coming months.

The biggest beneficiaries of this Asian,commodity boom are the Latin Americasuppliers. In fact, Chile, Peru and Venezuelarely on raw materials for more than three-quarters of their exports

Thats why for my money, I'm betting on thecountries that are raking it in from the supplyside, especially Brazil ...

In addition to its financial strength Brazil has ayoung, increasingly productive workforce withrising personal incomes. So the country'sdemographics support a solidly growingeconomy.

And investors are finally focusing on Brazil'soffshore oil discoveries and renewable energysources, which are putting the country wellalong the path to becoming an energy super-

power.

In September, Petrobras (NYSE:PBR) raisedabout $70 billion dollars in the world's largeststock offering to fund oil exploration,development and production.

China recently invested $10 billion dollars inPetrobras, in exchange for oil.

And Sinopec (NYSE:SHI), one of China's biggestoil and gas producers, is buying a 40% stake inRepsol's (NYSE:REP) Brazilian operations. The

deal would create one of Latin America's largestprivate energy companies, valued at $17.8billion!

So you can see, MONEY and I mean BIG MONEY is rushing into Brazil and other Latin Americancountries left and right!

This wealth will flow to the new middle class.They, in turn, will require governments to spend

more on public services, infrastructure andeducation.

It may seem a safe bet that billions of Asianswill continue to gobble up oil, iron ore, copper,soybeans and meat as they get richer. But oneday, the world will surely embrace alternativesto fossil fuels that emit less carbon.

And Brazil already has the leading edge, in theform of ethanol from sugar cane.

Emerging Market Opportunity #4 Follow the emerging middle class andwhat they spend their money on

What a difference August made. Our largestportfolio, LSI Dividend Stock Portfolio rose 10%,the LSI Growth Stock Portfolio gained 7% andthe ETF Portfolio appreciated 6% during themonth.

What's behind this boom?

An internal growth wave that follows thecommodity and export volume boom I have beenpointing to.

Here are the three forces driving Latin Americanstocks now:

Force #1: The region is undergoing an economicrebound.

After a brief downturn in late 2008 and early2009, a strong recovery is now under way.

The region is still dominated by Brazil, with itsnearly 200 million people and by far the largesteconomy in the region. We have had greatreturns from the small-cap ETF in Brazil (BRF),up 52% since being added. In August I addedanother ETF that is even more focused on theBrazilian consumer.

I'm still very excited about the other countriestoo. The growth leaders in Latin America nextyear are likely to be from Argentina, Chile andPeru. These countries are forecasted to grow 6%next year, slightly faster than the 5.5% regionalaverage for the period 2004 through 2008.

What's going on is simple: Tens of millions ofLatin Americans have climbed out of poverty


5/8



and joined a swelling lower-middle class. Withthat comes increased demand for everythingfrom AAA batteries to wireless phones.

While Latin American politicians squabble aboutthe U.S. role, regional integration and acommon market; the region's businesses arequietly creating a new reality.

Witness the emerging cohort of multilatinas,companies like Vale (NYSE:VALE), Gerdau(NYSE:GGB) and America Movil (NYSE:AMX) thatare making acquisitions and building regionalenterprises that span the Americas.

These are cash-rich companies with an appetitefor growth and a long-term view.

Force #2: This is no longer the era of banana

republics with weak finances.

The major countries in Latin America aredemocratic and attracting capital. Brazil,Mexico, Chile, Colombia, Panama and Peru allhave investment-grade credit ratings. Theirgovernments, households and companies areless indebted than those in many developedcountries!

Even Argentina is seeing an improvement as ithas agreed to pay old defaulted bonds, allowingit to realistically discuss issuing new government

debt.

Force #3: Ultimately, the consumers in theseemerging countries benefit as their per capitaincome grows.

If the region can keep up the growth of the pastfew years, income per person will double by2025, to an average of $22,000. By then Brazilmay be the world's fifth-biggest economy,behind only China, the United States, India andJapan.

Traditionally Latin Americas middle class wasemployed in the public sector. The new lower-middle class is more entrepreneurial, thoughmany of its members work at least partly in theinformal economy.

They aspire to acquire the six Cs: Casa, carro,cellular, computadora, cable y cinema. (A homeof ones own, a car, a cellphone, a computer,cable or satellite television and trips to thecinema).

I know what youre thinking, How much of thisdemand is financed? Well the fact is, verylittle!

Total credit to the private sector in LatinAmerica has averaged just 31% of GDP over thepast four decades, less than half the amount forEast Asia and the rich world, according to theIDB.

Admittedly this constraint is starting to weakenthough, mainly in the form of consumer loans

and mortgages.

Yes, Latin America is under-banked, which alsopresents more interesting opportunities ...

Brazilian Businessman Eike Batista

What does i t t ake to become wealt hy?

"In mining, you go to some crazy place, you set up a camp, youstart looking for water and energy and this way you can buildanything. That's the mind-set. That's my life. That's how I learnedto build things from zero," said Batista, a 51-year-old Brazilian

businessman.

Batista settled down in Brazil in 1980 to start an independent goldmining and trading company in the Amazon, negotiating withwildcat gold diggers. He ranks among the top billionaires in Braziland expects one day to become the richest man in the world.


6/8



Emerging Market Opportunity #5 Quality Latin American financial stocks attractbuyers

One thing has become clear to me over the lastthirty years: Find the leading, best capitalizedbanks with the least number of lending creditand investing portfolio problems, and yourebound to do well.

For example, JPMorgan (NYSE:JPM) is one of thehighest quality traditional banks in the U.S. Ifyou had invested $10,000 in September 2005 andreinvested dividends, you would have netted$2,634 a 26% gain. In contrast you would havelost 3% in the S&P 500 during the same time.

However, if you had invested that same amountin one of Latin Americas oldest and largest

public banks, let's say Banco Bradesco(NYSE:BBD), your ending balance would be$31,995 a 219% return in five years!

But I have been generally resisting financials inthe last year or so, during a period of risinginterest rates.

Fortunately, interest rates have stabilized. And Inow see an opening for Latin American bankstocks that will result in many of these namesbeing added to institutional and individualportfolios over the coming months.

I believe Latin American banks will become coreportfolio holdings not just takeover stories ortrading ideas. There are so many of these that Ithink the best way to get into them is through anew sector fund for financials, Global X BrazilFinancials (BRAF).

In addition to this ETF there is one stock thatcurrently sells at less than 70% of book value, athird of where its peers sell at. Thats why Ithink Bladex (NYSE:BLX) deserves to be in theGrowth Portfolio as the environment and

company have improved enough for the discountto be reduced.

Emerging Market Opportunity #6 Brazils domestic growth: Too hot to handle?

Latin American dividend-paying stocks,especially the utilities, posted a great June. It

seems no matter what the worlds economicoutlook is, people still need water, electricity,food and housing.

The uncertainty in the U.S. and Europeaneconomies and the massive surge in supply ofdollars are affecting Latin American financialmarkets in some unexpected ways.

Brazils policy of limiting gains in the real is alsopreventing the government from takingadvantage of the cheapest internationalborrowing costs in years. The Braziliangovernment has sold only one international issuethis year raising $788 million in April. The bondyields 4.6%, less than the local real-denominateddebt a huge potential interest savings of over8% if they want to issue more debt.

The key point here is that Brazil does not needmore U.S. dollars. With an investment graderating and only $60 billion of debt outstanding,the country is in a better credit position todaythan its ever been.

Yet the government may need to start borrowingfrom places like China to pay for expandedservices ...

With more than 200 million people, the demandfor housing will fuel the Brazilian economy forthe next few years.

And the 2014 FIFA World Cup and 2016 OlympicGames to be hosted by Brazil have placed thecountry's deficient infrastructure in thespotlight, especially its insufficient airportcapacity and urban transportation facilities.

Add to this the planned investments in majorinfrastructure projects, worth $450 billionbetween 2011 and 2014, and you have a recipefor strong inflation.

The 1Q 2010 GDP showed the strongest economic

growth and investment in 15 years.Consequently, the government is trying to cooloff its own China-like growth.

In fact, the Brazilian central bank is widelyexpected to raise its benchmark rate to 11%soon, with an eventual rise to 12% this summer.

Could the Brazilian economy cool too quickly?


7/8


8/8



Copyright 2010 by Weiss Research, Inc.

Published By: Weiss Research, Inc.

Publication Date: November 2010

Weiss Research

15430 Endeavour Drive, Jupiter, FL 33478

Customer Care: 800-291-8545

Our mission is to empower investors and consumers with unbiased information andto protect their savings, build their wealth, and prosper in good times or bad.

All rights are reserved. Permission to reprint materials is expressly prohibitedwithout the prior written consent of Weiss Research. The accuracy of the data used isdeemed reliable but not guaranteed. Theres no assurance the past performance of

these, or any other recommendation, will be repeated in the future.

UWD0012

uwd0012 emerging market opportunities report

Documents