Those Soaring Emerging Markets (BRXX, IGF, PXR, SAN, TMX, TII, AMX)

Hi there. This is Rudy Martin, one of Uncommon Wisdom’s emerging market specialists, filling in for Sean today. To say that emerging markets are presenting more and more attractive investment opportunities — is an understatement.

The fact of the matter is that emerging markets are now definitively where the BIG MONEY is heading. There’s simply too much risk in the (overly) developed economies of the West these days.

For instance, if you had invested $10,000 in the my emerging markets dividend model portfolio, over the most recent two-year period, you would have beaten the S&P 500 by almost 6 to 1!

Naturally, no one — myself included — can guarantee these types of returns in the future. But with the new opportunities I see cropping up in emerging markets from Brazil to Turkey …

I have absolutely no doubts — whatsoever — that emerging markets should be a strategic component of your overall portfolio going forward, and for quite some time.

Here are just five of the reasons I’m so keen on emerging market opportunities — and why you should be too …

Reason #1:
Emerging Markets Are Where The Biggest Wealth Is Now Being Created

The latest Forbes poll of billionaires gives the world’s richest title to — not Bill Gates, or even Warren Buffet — Carlos Slim Helu, the Mexican tycoon behind the telecommunications giant, America Movil (NYSE:AMX).

Most recently, Slim proposed selling his interests in Telmex (NYSE:TMX) and Telmex International (Nasdaq:TII) to his majority-controlled America Movil. This was a big plus for AMX, which will become Latin America’s biggest full-service provider of fixed phone, wireless, broadband and video services.

For Carlos Slim, it consolidates his control of the media sector in one higher valuation public company.

And that’s just Carlos Slim. Fact is, there are now 27 billionaires hailing just from the Latin American emerging markets.

And in the South Asian emerging markets, there are now 59 billionaires!

These billionaires are not getting rich in a vacuum.

Reason #2:
The Emerging Market Middle Class Is Also Growing By Leaps And Bounds, Consuming More Goods And Services

More than 30 million people moved out of the slums in Latin America since 2000, according to a recent U.N.-Habitat report.

Argentina and Colombia experienced the biggest reductions, with 40% of their poor climbing out of poverty in the last 10 years, joining a swelling lower-middle class.

As these people continue to move out of poverty they will have a huge impact on the already growing economies. With that comes increased demand for everything from cars to homes to wireless phones.

Here are some highlights of increased consumer demand …

— Brazilian auto production rose from to 3.1 million units in 2009, up 41% in five years (while U.S. car production dropped 53% in the same time span).

— The country had 8.4 million paid TV homes at the end of June. The accumulated growth in the first six months of the year is 12%.

— Retail sales in Brazil were up 11.4% in the first seven months of 2010 compared to the same period last year.

— More than 85% of Brazil’s population lives in urban areas, creating massive demand for new housing.

— And more!

And while Brazil may be the largest economy in Latin America, other emerging Latin American economies are showing even faster growth. The IMF projects 2011 GDP gains of 6% or more for Argentina, Peru and Chile.

Speaking of Chile …

— Chile has reduced its poverty rate from 45% of the population in the late 1980s, to around 14% in 2009.

— Chile now has one of the most developed mortgage markets in Latin America, representing 20% of GDP, up from 12% in 2002.  

— Chile’s retail sales are expanding at better than 13% annually.

Indeed, if Latin America can keep up the growth of the past few years — as I fully expect it will — income per person will double by 2025, to an average of $22,000.

Already, the emerging middle class of Latin America is aspiring to what is called “The six Cs”: A casa, carro, cellular, computadora, cable y cinema (a home of one’s own, a car, a cell phone, a computer, cable or satellite television and trips to the cinema.)

Reason #3:
The Trillion Dollar Boom In Emerging Markets Infrastructure

Just over a year ago, CIBC World Markets predicted worldwide government spending on public works projects would total $35 trillion over the next 20 years.

And an estimated $6 trillion of that will be spent in emerging markets alone in the next three years!

Already a massive real building boom is occurring in emerging markets as countries build roads, bridges and ports to connect their new mega-cities and to facilitate shipment to places like China.

For instance, Panama is undergoing a massive $5 billion expansion to increase the size and number of ships that can use the Canal.

Mexico’s government recently announced an infrastructure plan worth $50 billion. The flagship project is Punta Colonet, a $5 billion project to build a massive port in Mexico’s Baja California. The idea is to rival the strategically-important Long Beach port in neighboring California.

Now it seems an Argentina rail renaissance may actually begin with backing and financial support from the world’s largest importer of just about everything: China.

No stranger to infrastructure development projects in Africa and the Americas to expedite the flow of commodities it craves, China has committed roughly $10 billion to Argentine rail projects.

Brazil is spending money like mad to alleviate logistical bottlenecks associated with significant congestion at major seaports and to improve rails and roads.

Over the next three years, Brazil has allocated more than $500 billion to infrastructure project developments, with the largest piece of that going into energy projects.

This infrastructure spending trend extends to other emerging markets around the globe as well.

In Turkey, South Africa and the Middle East, a total of $1.4 trillion is being staged and readied for infrastructure projects in the next three years on airports, roads, rails, and ports.

Speaking of big money, the biggest money of all is flowing into the commodities area.

Reason #4:
The Commodities Super Cycle!

It is a safe bet that billions of Asians will continue to gobble up oil, iron ore, copper, soybeans, sugar and meat as they get richer.

Remember, China has the world’s largest population and for all its new wealth, China does not have enough arable land or other natural resources.

But the biggest beneficiaries of the Asian boom are the suppliers of natural resources in Latin America. As the World Bank notes, more than 90% of Latin Americans live in countries that are net exporters of commodities.

Naturally, the biggest commodity exporter is Brazil. And Asia wants a piece of the country.

That’s why China recently invested $10 billion in Brazil’s Petrobras, in exchange for oil.

And it’s why Sinopec, one of China’s biggest oil and gas producers, is buying a 40% stake in Repsol’s Brazilian operations. The deal would create one of Latin America’s largest private energy companies, valued at $17.8 billion!

It’s also why Petrobras was able to recently raised more than $70 billion in the world’s largest stock offering — ever — to fund oil exploration, development and production.

Chinese money is also flowing into Argentina.

As a large exporter, especially of agricultural commodities like soybeans, Argentina just received a minimum $12 billion commitment from China for rail projects.

Nearly every country in Latin America has a major commodity which is in BIG DEMAND — and pulling in boatloads of revenue for those countries.

Another reason to be very bullish on emerging markets …

Reason #5:
Most Emerging Markets Bank And Financial Sectors Are Undervalued!

I know what you’re thinking. Have I lost my mind? After all, most of the world’s banking system is a disaster.

But the key word is “most.” The fact of the matter is that throughout the emerging economies of Asia and Latin America, banks and financial institutions are reeling in the dough. And so are investors in them.

For instance, if you had invested $10,000 five years ago in JPMorgan — your investment today would be worth $12,741 for a 27% gain, including reinvestment of dividends, as of the end of September.

But if you had invested the same $10,000 in an emerging country bank like Banco Santander Chile (NYSE:SAN) you’d be sitting on $27,413 — for a 174% return in five years!

And you would have also made out very nicely in other situations such as the ITAU-Unibanco merger, where a $10,000 investment in Unibanco would now be worth more than $32,432.

And yet, emerging market financial institutions are still UNDERVALUED.

In fact, I believe that many emerging market banks and financial institutions will soon become core portfolio holdings.

Think you have to open an account in one of these emerging markets to make a play in their developing economies?

Think again, because you don’t even have to leave your living room or open a special brokerage account.

In just the last few months, a new category of exchange-traded funds, or ETFs, have been launched focusing on emerging markets investing.

Here are three examples of ETFs making a play just on the huge infrastructure developments going on in these markets …

— The PowerShares Emerging Markets Infrastructure ETF (NYSE:PXR) is about one-third invested in Asia, 12% in Latin America. It’s up 25% in the last three months alone!

— The iShares S&P Global Infrastructure Index Fund (NYSE:IGF) is comprised of large infrastructure companies all over the world involved primarily in utilities, energy and transportation infrastructure.

— The Brazil Infrastructure Index Fund (NYSE:BRXX), unlike many emerging markets ETFs, doesn’t focus exclusively on mega-cap stocks. About half of BRXX’s assets go to mid-cap securities, with about 35% in large caps.

I like them all.

To follow me on Twitter, click the following link:

Best wishes for your emerging new wealth,

Written By Rudy Martin From Uncommon Wisdom Daily 

Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig. 

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