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With hedge fund manager, CNBC regular and long-time veteran of the Russian markets Tim Seymour at the helm, Emerging Money (http://www.emergingmoney.com) provides education, trading analysis and comprehensive views of emerging markets around the world. As economies in the BRIC group and beyond... More
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  • Everyone watching China data
    Tonight sees a lot of economic numbers coming out of Beijing. Global investors will be glued to the inflation data in particular as the key to yesterday's interest rate hike. Until yesterday, economists expected to see confirmation that Chinese consumer inflation edged up to an annualized rate of 3.6% in September from 3.5% in August.

    While this would have been well outside Beijing's stated inflationary comfort zone of around 3%, it may not have been enough to trigger the surprise rate hike that took global markets on a bit of a ride yesterday. The question is whether the People's Bank of China (PBOC) knows something about tonight's numbers that we do not.

    One thing is clear: Even after the rate hike, retail deposits in China are still paying less in interest than inflation will take out of their purchasing power. The new deposit rate is 2.5%, so as long as inflation remains above that level, PBOC is unlikely to be able to encourage many Chinese to leave their cash in the bank. In fact, with local food prices rising 7.5% in August, Beijing may be getting nervous about whether Chinese peasants will still have enough to eat if inflation persists at current levels.

    Beyond that, the economic book may be able to go on unimpeded by tighter monetary policy. If so, the yuan's paradoxical retreat from the rate hike -- normally higher interest rates strengthen the underlying currency -- may unwind in fairly short order. Good news for CNY and CYB:

     

    Disclosure: no positions
    Oct 20 2:55 PM | Link | Comment!
  • Brazilian Banks Look Behind Their Borders...Who Are The Targets?
    Itau Unibanco and Banco do Brasil are actively looking at international expansion opportunities to parlay their thriving Brazilian businesses into global brands.

    Banco do Brasil (BDORY, quote), which is Brazil's biggest financial institution but not widely traded by foreign investors, is dipping into the U.S. market by purchasing a few small lenders for around $100 million.

    Itau Unibanco (ITUB, quote), BDORY's leading domestic rival, is looking closer to home -- and it is the ticker traders are watching.

    ITUB currently only does around 15% of its business outside Brazil. Setubal reportedly thinks that percentage is "small" for a bank of Itau's stature. Acquisitions are likely to be other Latin banks.

    A combination of positive demographics, good capitalization, and stumbling Western competition has Brazil’s banks moving into a more prominent role around the world.

    Who will get the bid?

    The question, however, is which banks will get the nod (and the deal premiums) from ITUB.

    With its $100 billion market cap, the Brazilian giant almost has an obligation to be choosy -- while there might be some small add-on acquisitions here and there, regional players with the scale to be a good strategic fit are relatively few in number.

    In Argentina, BDORY already has a lock on Banco Patagonia (BPTGY, quote) and Spain's BBVA (BBV, quote) controls Banco Frances (BFR, quote). Banco Macro (BMA, quote), the country's second-biggest private bank, may be a tempting opportunity. But with a current market cap of $24 billion and Argentina's uncertain political environment to grapple with, it may be too big a bet to make.

    In Colombia, either Bancolombia (CIB, quote) or Corficocolombiana (CRPFY, quote) would be a tempting prize. CIB in particular does business throughout the Caribbean, and ITUB could probably grab a controlling stake for well under $7 billion.

    Banco de Chile (BCH, quote) may also be a great opportunity for ITUB. Foreign banks have been able to buy into the top tier of Chilean financial institutions before -- as the existence of BBVA Chile and Santander Chile (SAN, quote) demonstrates -- and with a $10 billion market cap and branches strewn along the hemisphere, both the scope and the price may be right.



    Disclosure: None

    Aug 20 2:05 PM | Link | Comment!
  • Cracking the Indian Market: ADR vs ETF
    U.S. investors are often frustrated at the disparity between the economic realities of India and the opportunities they have to get exposure to that market story.

    On one hand, we are constantly bombarded with evidence that India is one of the biggest economic development stories of all time, with a vast industrial presence, a significant domestic energy industry and a thriving consumer market.

    Overly weighted to tech

    But based on the companies that have pursued listings on Wall Street, you'd barely know the country did anything but IT support. Indian ADRs have $110 billion or so in aggregate market capitalization and technology companies -- everyone from giants like INFY (quote) and WIT (quote) down to REDF (quote) -- account for about $49 billion of that

    .

    There is a lot of growth in Indian IT, but the sector only really accounts for around 8% of the economy. Why do IT companies get 44% of all the Indian ADR market cap?

    Part of the answer is cultural. Unlike the gigantic quasi-government enterprises like ONGC (the Indian Oil & Gas Company) and State Bank of India, the tech companies incubated according to a more entrepreneurial model. When it was time to grow, they went to the capital markets, and at the time Wall Street was the hot place to launch an offering.

    Meanwhile, the gigantic family-owned conglomerates like Reliance Industries rarely went to foreign markets for capital because it just was not necessary. Likewise, the gigantic state companies stayed at home, slowly auctioning off bits of their equity to local investors.

    As a result, even if you constructed a portfolio out of all 16 Indian ADRs, you might be getting some great companies, but you would still only be getting exposure to 8% of the $1.2 trillion Mumbai market. You would miss out on utilities, steel, mining, oil, coal, consumer products, retail, most banks and most of the country's biggest telecom companies -- just for a start.

    Other distortions

    That 8% exposure is also surprisingly oriented toward the mid-cap side of the Indian market. Out of the top 30 Mumbai-listed companies -- the "Indian Dow," if you will -- only four have ADRs: technological superpowers INFY and WIT along with banks HDB (quote) and IBN (quote).



    Once again, you can buy the ADRs, but you will miss out on 86% of the total weight of these 30 companies. Between them, these big names account for half of all Indian market cap, so do not be surprised if your ADR portfolio fails to correlate all that well with the Mumbai indices.

    Last thing to remember: Simply having an ADR does not mean that a company is the leader in its home market. It just means that, for whatever reason, management opted at some point to pursue a U.S. listing.

    Tata Motors (TTM, quote) is a great company, but it is not India's biggest car maker. Dr Reddy's (RDY, quote) has a compelling pharma model, but is not India's biggest drug company. SLT (quote) is not the biggest miner and MTN (quote) is not the biggest phone carrier. What these companies have to offer is accessibility, and you will probably pay a premium for that.

    The ETF approach

    Of course, if you like one or more of these companies, it should have a role to play in your portfolio. But if you are looking for that other 92% of the Indian stock market -- or if you just want returns that are more closely correlated to the SENSEX -- then it may make sense to start with a broad ETF and build additional positions in a favorite company around it.INP (quote) has the broadest portfolio but it is heavily weighted to U.S.-listed names. PIN (quote) may be a better reflection of what is really happening in India. ADRs only account for 24% of the portfolio.



    Of course, ADRs have their advantages. Look at how much more volatile PIN is. But if you want real exposure to the Indian story, somewhat sharper declines are the price you pay for (we hope) those steeper peaks.

    Disclosure: No positions
    Aug 20 1:45 PM | Link | Comment!
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