Fisher Investments on Emerging Markets

The fifth installment of the Fisher Investments On series is a comprehensive guide to understanding and analyzing investment opportunities within emerging markets. Growing in relative importance in recent years, emerging markets offer dynamic and unique opportunities. Fisher Investments on Emerging Markets can benefit both new and seasoned investors, covering everything from regional basics to country-specific insights to practical investing tactics, including common pitfalls to avoid.

This book begins with an overview of emerging markets, followed by a historical narrative of the major emerging market regions—with emphasis on the economic, political, and sentiment drivers that help shape the investing landscape.

• Discusses regional, and even country-specific, drivers.
• Examines the major regions, including Russia, China, Latin America, and Asia.
• Addresses the challenges unique to emerging and developing regions, and some common pitfalls to avoid.
• Delves into top-down investment methodology as well as individual security analysis.
• Outlines a five-step process to help differentiate firms in emerging markets—designed to help you identify ones with the greatest probability of outperforming
• Provides investment strategies for a variety of market environments

Filled with in-depth insights and expert advice, Fisher Investments on Emerging Markets provides a framework for understanding emerging markets. With this book as your guide, you can quickly gain a global perspective on emerging markets and discover strategies to help achieve your investing goals.

Foreword ix

Preface xi

Acknowledgments xv

Part I Going Backward to Move Forward 1

Chapter 1 The Five WS of Emerging Markets 3

Who or What? 4

Where? 7

When? 9

The Most Important Question—Why? 12

But How? 13

Chapter 2 Lions, Tigers, and Dragons, Oh My! 15

Roar of the Tigers 16

To the Brink of Extinction—The Asian Financial Crisis 22

Crisis Causes 26

Lessons and Legacies 33

The Dragon Unleashed 36

The History of China’s Stock Market—A Lesson in Supply and Demand 39

Chapter 3 Latin America and the Vagaries of Boom and Bust 47

The Political Economy of Latin America 48

Till Debt Do Us Part—The 1982 Crisis 53

The Tequila Crisis 67

Chapter 4 From the Rubble of the Iron Curtain to the Legacy of Apartheid 77

The Rubble of the Iron Curtain 78

The Wild, Wild East 81

Crisis Strikes Again—The 1998 Ruble Crisis 88

Putin and the Modern Soviet State 91

The Legacy of Apartheid—Race and Markets 96

Part II Developing an Emerging Markets Strategy 107

Chapter 5 From the Past to Today—How to Approach Emerging Markets 109

Prelude to a Portfolio: Choosing a Benchmark 110

Getting Started: Emerging Markets Today 114

The Best Way to Think about Emerging Markets 120

Putting It Together: The Top-Down Method 122

Top-Down Deconstructed 126

Examples of Quantitative Factor Screenings 127

Chapter 6 Developing Portfolio Drivers 131

The Importance of Portfolio Drivers in Emerging Markets 131

The Proper Perspective 134

Identifying Portfolio Drivers 136

Translating Drivers Into Portfolio Allocation Decisions 145

An Illustration in Analyzing Portfolio Drivers—Brazil During the 2003–2007 Bull Market 146

What Can Drive Emerging Markets as a Category 154

Getting Information to Develop Drivers 160

Chapter 7 Security Analysis 165

Make Your Selection 166

A Five-Step Process 167

Other Important Questions to Ask 175

Chapter 8 Putting It Together 181

Two Initial Considerations 181

Instruments for Investing in Emerging Markets 183

Common Challenges and Risks 193

The Future—Frontier Markets 198

Notes 201

About the Author 213

Index 215

AUSTIN B. FRASER is a research analyst at Fisher Investments with a focus on emerging markets and macroeconomic strategy. Prior to joining the firm, he worked at Cambridge Associates in Washington, D.C., as a research associate. He graduated from the University of Michigan, Ann Arbor, with a BA in history. Originally from Detroit, Michigan, he now resides in San Francisco.

The Fisher Investments On series is designed to provide individual investors, aspiring investment professionals, and students the tools necessary to understand and analyze investment opportunities—primarily for investing in global stocks. Each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide specifically focuses on emerging markets, the basic investment methodology is applicable for analyzing any global equity category, regardless of the current macroeconomic environment.

Following a top-down approach to investing, Fisher Investments on Emerging Markets can help you make more informed decisions, specifically within this dynamic category. Opening with an engaging overview of emerging markets, this book then provides a historical perspective of the major emerging market regions, with emphasis on the economic, political, and sentiment drivers that have shaped the investing landscape.

Armed with this essential information, you'll then be introduced to tools and techniques for investing in emerging markets. Fisher Investments on Emerging Markets:

• Covers the types of instruments and strategies emerging markets investors might use and the common challenges they will likely face
• Discusses the development of portfolio drivers, a critical step in determining the areas of the market expected to perform differently than the whole
• Provides a look at today's emerging markets and explores which countries and sectors have the most influence
• Outlines a five-step process to help differentiate emerging markets firms—designed to help you identify ones with the greatest probability of outperforming

Filled with in-depth insights and expert advice, Fisher Investments on Emerging Markets provides a framework for understanding this field and can help you make better investment decisions—now and in the future. With this book as your guide, you can gain a better perspective on emerging markets and discover strategies to help achieve your investing goals.

FISHER INVESTMENTS ™ on EMERGING MARKETS

Comprising 60 percent of the world's nearly seven billion people and almost a third of global output, emerging markets are fertile ground for the global investor. Yet for all their allure, many avoid emerging markets out of fear, ignorance, or a belief that they are radically different from developed world markets.

The sixth installment of the Fisher Investments On series is an all-encompassing guide to emerging markets. It skillfully demystifies investing in far-flung corners of the world and teaches you how to effectively analyze this segment of the investing landscape for yourself. Opening with an engaging overview of emerging markets, this book then provides historical perspective on the major emerging market regions —outlining the various social, economic, and political events that have shaped the investing landscape.

Next, it thoroughly discusses how you can identify and develop portfolio drivers and provides an introduction to security analysis. With this essential information in hand, the book then details several instruments and strategies available to investors.

You don't have to be a professional to successfully invest in emerging markets—but you do need to be prepared. Fisher Investments on Emerging Markets provides the framework that can help you to begin investing more globally.

About Fisher Investments Press

Fisher Investments Press brings the research, analysis, and market intelligence of Fisher Investments' research team, headed by CEO and New York Times bestselling author Ken Fisher, to all investors. The Press covers a range of investing and market-related topics for a wide audience—from novices to enthusiasts to professionals.