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Archive for April, 2010

A Green Brazil

April 30, 2010 Leave a comment
At a rolling facility in Ipatinga, Minas Gerais

At a rolling facility in Ipatinga, Minas Gerais

We started investing in Brazil in the early 1990s when inflation was running at as high as 5,000%. On a visit to Rio de Janeiro, I remember telling my Brazilian friends how astonished I was to hear that inflation was 2,000%. To my even greater surprise, they replied, “Yes, isn’t it wonderful? Last week it was 3,000%!”[1]

Things have changed dramatically since then. Brazil’s export and domestic markets are booming, and economic growth could be as high as 5.5% this year.[2] Brazil is by far the largest economy in Latin America and the 10th largest in the world. It has a land mass larger than the U.S. with a population of over 190 million, that is much greater than that of Russia or Japan. Of course, some problems remain. Government corruption and crime both continue to be stubborn problems. But signs of economic improvement are abundant and hopefully may lead to a decline in the crime rate.

After the ruinous inflation of the 1990s, the government started adopting strict monetary policies with a focus on balancing government budgets. As a result, reserves of foreign exchange have built up. During the recent credit crunch that almost crippled the U.S. and Europe, the government opened up the money taps and encouraged banks to lend, thus stimulating domestic consumer demand and softening the impact of the crisis.

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Categories: Perspective

Demystifying Romania

April 21, 2010 Leave a comment
In a Romanian shopping mall

In a Romanian shopping mall

The general perception when investors talk about countries in the frontier markets grouping is to identify the asset class with countries in the Middle East and North Africa region, as reflected by their dominance in indexes such as MSCI. Eastern European frontier markets like Ukraine and Romania are often overlooked, but we think they offer exciting investment opportunities.

I have been to Romania several times and more frequently over the past six months as we are in the process of establishing and resourcing a dedicated office in Bucharest. I like the country for its historical charm, including places like Bucharest, its capital city, and Sibiu. The Romanian culture is somewhat different from other Eastern European nations since its roots are less Slavic and more Latin.

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Categories: History, Perspective

Update on Thailand

April 16, 2010 Leave a comment

I have received numerous queries on the current situation in Thailand since the violence on Saturday, April 12, where 21 people were killed and over 800 injured.  We believe that this clash, the worst in 2 decades, will definitely result in political changes for the country with more political participation of the “red shirts”, who form the core of the protest movements that are considered anti-government. We are more bullish on the long-term opportunities for the Thai economy and market.

We believe the declaration of emergency rule in Bangkok, the Thai capital, will not change the situation and may even result in greater resistance. We understand that there is growing sympathy among the rank-and-file military for the red shirts, based on various reports.  The authority of Prime Minister Abhisit Vejjajiva has also certainly been harmed by the violence.  The army chief General Anupong Paochinda has said that “a house dissolution should be the answer,” and Abhisit had said that he would be willing to dissolve parliament by the end of the year.  However, that will not be acceptable to the opposition, especially since they feel he is stalling for time so that he can push more money into the rural areas and gain more support.  Indeed, there are now signs that various forces are finding opportunities for the ruling parties to bow out gracefully.   There is also news that Thailand’s Election Commission just recommended that Abhisit’s ruling Democratic Party be prosecuted for allegedly accepting illegal campaign donations.  That would go to the courts and if the verdict is guilty, it would lead to the party being dissolved and forced from office.  Such a development would lead to new elections.

Calling elections, however, will not resolve the longer-term issue, which is a societal divide between the ruling urban elite and the rural masses.  This needs to be addressed.  Otherwise, a win by parties aligned to the “red shirts” will likely lead to the “yellow shirts”, who are considered pro-government and royalist supporters, taking to the streets and vice versa.  We expect further unrest.

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Categories: Perspective

Knowing Your Shareholder Rights

April 2, 2010 Leave a comment

This week, I talk about an issue that I think is important for investors, especially for long-term investors. It is not enough just to identify the next “big opportunity”, but, having identified it and invested in it, you need persistence and determination to ensure that your investment stays on the right track.

In my view, shareholder activism is not a privilege – it is a right and a responsibility. When we invest in a company, we own part of that company and we are partly responsible for how that company progresses. If we believe there is something going wrong with the company, then we, as shareholders, must become active and vocal.

However, most minority shareholders tend not to be very active. One of the biggest reasons for their reluctance is that it can take a lot of time and effort, and sometimes money too, to persuade management to change. To become a strong activist, one may need to hire lawyers, which could become quite expensive. Shareholders often find that it is much easier to simply sell their position in a company that they feel is going in the wrong direction. If enough shareholders sell out, and the share price drops, the company’s management may realize that their actions are not welcomed by the market, and they may retrace these actions. However, even if a share sell-off engenders change (which itself is unlikely), the change usually comes too late for those shareholders that have already sold out. In the long term, trading in and out of a company’s shares could present a costlier and more time-consuming strategy than simply exercising your rights as a shareholder.

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Categories: History, Perspective