Myanmar, once known as Burma, has democracy standing on its doorstep.
For decades under Myanmar’s former military regime, Aung San Suu Kyi led the fight for democracy as head of the National League for Democracy (NLD). A Nobel peace laureate, she retained her popular appeal over two decades while she was either imprisoned or under house arrest. Now free, on April 1, 2012 she won a landslide victory in Myanmar’s parliamentary by-elections. Drawing cheering crowds, her supporters call her “Amay Suu,” or “Mother Suu.” Hopes are high she will nurture this formerly troubled nation into a new era of democracy and personal freedom.
In 2011, perceptions regarding the composition of the global economy underwent a shift—instead of the U.S. being considered as the world’s key growth engine, investors began to realize that large emerging economies such as China and India were increasing their contribution to global GDP. While the U.S. saw its long-term credit rating downgraded in August and the eurozone was the center of heightened worries about sovereign debt for much of the year, some emerging economies witnessed positive growth in 2011.
That is not to say there were not challenges. As most developed nations continued to implement very loose monetary policy measures, washing much of the global financial system with liquidity, many emerging countries had to reckon with higher prices for goods and services, appreciating currencies and, in some cases, “imported” inflation. In their fight against high inflation, several emerging-market central banks embarked on tightening monetary policies for much of the year, which led to investors worrying about the prospects for economic growth. Indeed, the high-growth economies of China and other emerging Asian and Latin American countries lost some momentum as the year wore on, but to us they now appear poised for softer landings than their developed-market counterparts.
The death of North Korean leader Kim Jong-il on December 17, 2011, escalated the uncertainty surrounding the regime change in Korea, which was preparing for a leadership transition in 2012. Very little is known about Kim Jong-un, the young man who is taking on the role of dynastic head. Some analysts feel that the death of Kim Jong-il sharply increases the risks and uncertainties from the secretive Pyongyang regime, which has significant consequences for security on the Korean peninsula and beyond. South Korea and Japan are most immediately threatened, but China and the U.S. are also deeply involved with vital stakes in North Korea’s future.
We believe Kim Jong-un, being untried and young, may not be entrusted with the power his father had, at least initially, and there is a chance that he will be affected by the rest of the Kim family. We think there is a potential risk that the regime may undertake some type of military activity or nuclear tests in an effort by the new leadership to demonstrate to the outside world that there has been no regime policy change, internal strife or reunification with the south.
This week I’ve joined forces with Dr. Michael Hasenstab, co-director of Franklin Templeton Fixed Income Group’s international bond department, to bring you our joint perspectives on emerging markets: where they have been, where they are now, and where we believe they are headed.
I invite you to read “Emerging Markets: Yesterday, Today and Tomorrow” at Beyond Bulls & Bears, which hosts perspectives from many of my fellow portfolio managers.
I’ll be back on this blog in the next week or so with my 2011 year in review and outlook for 2012.
Hello readers, thank you for your patience while I was away from this space for a few weeks. We continue to see quite a lot of market volatility, but of course we consider these to be times of opportunity in our ongoing hunt for attractive investments, and we have been pounding the pavement to look for bargains. Here’s a note from a recent visit.
What country is the world’s largest producer of petroleum? No, it’s not Saudi Arabia but Russia. Oil and gas are important to Russia’s economy, as are a whole host of natural resources such as nickel, palladium, diamonds, etc. Because of what have been higher commodity prices, Russia’s economy is growing at a fast pace (it is projected by IMF to grow 4.3% this year), interest rates have come down from their peak in 2008, unemployment is lower, foreign reserves have risen to over US$500 billion as at July 2011, and Russian equity markets have generally done well since 2008, even considering recent declines. That is why we have been to date interested in Russian oil companies. For this reason, I launched a trip to the Caspian Sea to see first-hand how oil drilling and production operations worked on an offshore oil rig. Read more…
In the search for good investment opportunities around the world, I have made many interesting company visits. This time, I particularly wanted to share some of my noteworthy observations from Argentina, where we had our semi-annual analyst conference earlier this year.
Argentina has been experiencing steady growth throughout the years despite the country’s economic problems, from double-digit inflation to a shrinking trade surplus. We saw one good example of the improvements in the country when we arrived at the Ministro Pistarini International Airport, which, since its privatization, is in much better shape than it was in the past. Besides the bright and airy new wing, the customs and immigration process was quick and efficient. We then checked into a modern hotel in the Puerto Madero area in Buenos Aires, which is another good example ofArgentina’s transformation. Puerto Madero was a rundown port with derelict red-brick warehouses, but thanks to creative entrepreneurs, the warehouses lining the port canal have been transformed into offices, restaurants and apartments. The hip and wealthy have migrated to the area; across the canal are a slew of new high-rise, high-end apartments, and a half hour’s walk from the hotel along the canal is a floating casino that is seeing brisk business.
I recently visited Muscat, the capital of Oman. Oman has a very strategic position in the Middle East, controlling the tip of the Musandam peninsula even though the peninsula is separated from the rest of Omanby land belonging to the United Arab Emirates (UAE). That tip points right into the Straits of Hormuz, which is the choke point for oil leaving Saudi Arabia, Qatar, Iran, Kuwait, Iraq and the UAE from the Persian Gulf to the Arabian Sea, leading to theIndian Ocean. On a clear day, you can see Iran from the tip of the peninsula. Oman’s military, therefore, has a big responsibility to protect that waterway.
Like its neighbors, Saudi Arabia and the UAE, Oman has a reasonable amount of oil, though of course, not as much as Saudi Arabia. With advanced recovery techniques, Omanhas been able to increase production to about 800,000 barrels per day, compared to Saudi Arabia’s current production of about 9 million barrels per day. So the Sultan of Oman has wisely been promoting other industries such as manufacturing and tourism in this country of three million people (of which one million are expats from places like India, the Philippines, Bangladesh and Pakistan). For example, Sohar, a city north of Muscat, is being developed as a manufacturing zone and a port. We traveled there to see how it was growing and to view a plant that was utilizing gas from the country’s natural resources.