Monday, December 21, 2009

EMs in 2010 and why the sentiment is bullish

We have been and we continue to buy. Of course, we are looking for good prices. So as the markets up and down, we are trying to get the low points ..

This is the, kind of correction that we would expect in the bullish environment we've had for almost one year now. So, 20% should not be surprising. China has already corrected by that much. So that could certainly happen.

What we are seeing is a mid point. We are now at the middle of the valuation range. At a low point in the last ten years it was one time's book. At the high point, it was three times of the book value now it's about two times. So we are more or less in the middle of the valuation range .. the bullish trend is definitely with us and we think it will continue into 2010.

But if you look at the big picture in terms of large amounts of money we have in our large funds, it would be China, Brazil and following that India and Russia.

There are two sectors that we are emphasizing. First is commodities. We believe that commodities will continue to trend upwards because the demand-supply situation is such that we see higher prices.

The second area would be consumers; per capita incomes are going up at a very rapid rate; you can see shopping everywhere you go. The big malls are being built.

On the commodities front first and foremost oil companies because they are going to continue to have very good cash flow and growth.

Mining companies, companies that produce nickel, platinum, gold etc. And then some of the agricultural companies, because we see shortages in allot of the commodities going forward.

I do see further rises. Of course, you are not going to see percentage change that we've seen so far because we came from a really low base in the end of last year and the beginning of this year. But I see further increases.

We must remember that with interest rates where they are if you take the reciprocal of the interest rate you can tolerate a very high PE ratio. So, I think we got to see the PE ratios in relation to where the interest rates are.

I am looking forward to a very good 2010 with of course corrections along the way. It is not going to be in percentage terms as exciting as it’s been up to now but I think we are going to have a very good 2010.

So a very rapid rise in prices, so that we get too much excitement in the market and sort of bubble mentality that would be a bad sign. Then of course a rapid increase in interest rates and inflation: that would be a bad sign too because that would mean restriction in money flows and general tightening of the credit markets.

verbatim transcript

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