Are You Panicking Yet?

If you've invested money in the emerging markets, then you probably have less money invested today than you did last week. China, India, Brazil, Vietnam … they've all been hammered amid widespread fears of global financial instability.

The goal of this (hopefully) weekly column is to help you understand what's happening and key in on some of the important events that are driving the action. This is important, because we continue to believe that the emerging markets continue to offer the most compelling long-term opportunities for American investors.

Take an interest in China
Normally, we might tell you that these fears are unwarranted or overblown. But the recent events at Lehman Brothers, Merrill Lynch, and AIG (NYSE: AIG  ) have clearly freaked out the rest of the world. China announced on Tuesday, for example, that it is cutting interest rates for the first time in six years!

The Chinese government had long assumed that economic growth was a given. It considered rising inflation its primary peril. Higher prices would pressure laborers and people in the western part of the country, who've thus far seen fewer benefits from China's incredible growth story.

That opinion is changing, now that China's once-strong manufacturing base must reckon with a significant slowdown in global demand, along with greater competition from countries such as Vietnam and Cambodia. Indeed, manufacturers such as Motley Fool Global Gains recommendation Nam Tai Electronics (NYSE: NTE  ) have reported declining volumes. And while Nam Tai can cope, given its focus on profits, many smaller Chinese businesses are suffering. According to China's National Development and Reform Commission, 67,000 businesses in China posted losses through May, and 3,600 manufacturers closed up shop in the Guangdong province alone.

One man's crisis is another man's opportunity
Suffering hasn't been limited to Chinese manufacturers. Slowed economic activity has squeezed China's once-spectacular real estate market. With millions of Chinese flocking from rural areas toward jobs in China's exploding metropolises, demand for urban real estate offers strong long-term opportunities for companies such as China Housing & Land Development (Nasdaq: CHLN  ) . As we're currently realizing, this process won't move forward unabated.

A combination of tight credit (a result of government attempts to prevent real estate speculation) and a collapsing stock market has spelled doom for many smaller property developers, some of which have projects already under construction, heavily reliant on borrowed funds. This has created an amazing opportunity for cash-rich developers to snap up properties at a fraction of their value. Armed with deep pockets and a long-term mindset, these developers are positioned to see very healthy returns once this short-term dip in real estate comes to an end.

Risks remain
Finally, there's news out of Latin America this week, as South American leaders met in Chile's capital to express what they termed their "full support" for Bolivian president Evo Morales. If you're not familiar with Morales or what's been going on in Bolivia, here's a quick recap to get you up to speed.

Morales is a socialist leader who was first elected president of Bolivia at the end of 2005. He has close ties to Venezuela's Hugo Chavez and believes that "capitalism is the worst enemy of humanity." He has taken steps to nationalize Bolivia's natural gas supply, and he seeks to do the same with agriculture and other industries.

The new natural-gas policy affected not only U.S. companies such as ExxonMobil (NYSE: XOM  ) , but also France's Total SA (NYSE: TOT  ) , and even neighboring Brazil's Petrobras (NYSE: PBR  ) . This has upset other leaders in the region, along with significant portions of Bolivia's population, who are now engaged in violent clashes with Morales's supporters. That's led to disruptions in the economy and plummeting Bolivian real estate values.

While we can appreciate Latin American political leaders' interest in encouraging stability, they also need to understand that nationalization threatens to undo years of economic progress in the region. Brazil, for example, has been an enormous economic success story, particularly because of its increasing respect for property rights and a level playing field. Brazil still has a long way to go, but the country's president, Luiz Inacio Lula, needs to step up and share that blueprint with his neighbors. In time, we believe, he will.

Although the current crisis is crushing stock prices, we believe it also provides opportunity for companies such as Argentina's Cresud (Nasdaq: CRESY  ) to buy up valuable agricultural land for cheap in places like -- you guessed it -- Bolivia. After all, in these times of crisis, smart investors (like the management team at Cresud) can make a fortune.

Tim and Nate are Motley Fool Global Gains analysts. Nam Tai and Cresud are both Global Gains recommendations. Read more of the team's research and stock recommendations, free for 30 days.

Tim owns shares of Nam Tai and Cresud. Nate owns shares of Cresud. Petrobras and Total are Income Investor picks. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 18, 2008, at 3:13 PM, venkytalks wrote:

    The question is, just how much leveraging have Chinese banks, real estate companies and manufacturers indulged in? If the Chinese have over-leveraged, or have bad loans on their books, then their banks are bound to fail. I shudder to think what that would do to the global economy. Their books would bear a close inspection, they have been economical with the truth in the past. In the meantime, their stock index are down 60% or so from their peak. No matter what other markets do, the only way the Shangai index is heading is slowly and steadily down, relentlessly. I wonder why. If people have borrowed against their shares, their collateral would be junk by now. And banks would have a lot of bad loans! Are the Chinese so much better at capitalism than US companies and banks? I have a horrible feeling they have been doing the same things US banks have been. They are just not coming out with the facts.

  • Report this Comment On September 18, 2008, at 7:51 PM, titanicdwn wrote:

    Using some serious caution, stocks based in Vietnam and Cambodia are much better for me. They will eventially give China a real run for the money.

  • Report this Comment On September 18, 2008, at 11:02 PM, 123go100 wrote:

    Is there any relationship between the nationalization in South America and the government bail outs that we seeing on Wall Street? Or are we special?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 731230, ~/Articles/ArticleHandler.aspx, 10/20/2014 7:39:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement