The emerging world is divergent, something which catch phrases like BRIC might hide.
*China suffers from the contradictions of Communism. Two Chinese anti-corruption activists were sentenced to 6 ½-yr jail terms yesterday because they took photographs of themselves holding banners urging government officials to disclose their wealth. A third activist was given a shorter sentence after a show trial over charges Amnesty International called “preposterousâ€. While the current Beijing regime is formally cracking down on ill-got wealth in the hands of relatives of top officials, any populist movement with the same goals counts as a threat to Pres. Xi Jinping whose own family members have vast wealth of occult origin. What would Karl Marx say? What would Confucius say? Neither would lock up the critics of corruption and backhanders;
*India’s new premier, Narendra Modi, is a follower of Maggie Thatcher. He is proposing both closer ties with Russia and partial privatization of government controlled companies. He wants to cut the level of state ownership of companies to a maximum of 75% over the next 3 years. The can cut the New Delhi government deficit by $9 bn, money that is needed, while also reducing the interference in business by India’s sprawling government bureaucracy. The sales will probably also boost the Bombay bourse which has already risen sharply after the election of a free-marketeer;
*Argentina is expected to hold its nose and negotiate with hold-outs against its refinancing of government debt and make partial payment to them of the $1.33 bn it owes under new US court rulings. According to Bloomberg, Cristina Fernandez’s ratings are so low that the population no longer is following her left-wing lead against hedge-fund “vultures†and supports negotiations. Approaches have reportedly been made to Elliott, a US hedge fund owner of the original bonds which refused to restructure them in 2005 and 2010. The bonds defaulted in 2002 and were purchased at a pittance.
We got into the Argentina debt mess early. Back in 2003 I researched in Buenos Aires a yankee (US$) bond issued by two offshore subsidiaries of Telefonica de España (TEF) and determined without any doubt that the bond was guaranteed by Spain’s TEF, regardless of what went on in the government bond sector under Cristina’s late husband, Nestor Kirschner. So we piled in and made a packet and were bought out 18 months later. I guess we were vultures too.
This week JP Morgan is launching its new Diversified Return Global Equity ETF (exhange-traded fund, ticker: JPGE) which uses multi-factor analysis to select stocks in the FTSE index, mostly from developed countries. The factors include relative valuation, momentum, low volatility, and market cap size. The fund as launched holds 450 different stocks. It is offered as an alternative to ETF’s based on market cap or yield. The fee is 0.38%. The managers will use indexes selectively. They are Beltran Lasta who covers global and Europe shares and James Cook, an emerging markets and Asia equity specialist.
While it is always great to run into a new way to slice the global investing cake, the use of multiple factor indexes is unlike to reflect the news (as reported above) because indexes are by definition backward looking. That is why no ETF will really beat the performance of selected stocks.
