Delivering Alpha Panel On Emerging Markets: Has Their Time Come?

Tom Buerkle International Editor from Institutional Investor is moderating a panel at the CNBC Delivering Alpha conference regarding emerging markets, and asks whether their time has come. Buerkle interviewed Martin Whitman, of Third Avenue Management, Scott Kalb of Korea Investment Corporation, and Marko Dimitrijevic, founder of Everest Capital. The over whelming response? Yes. Dimitrijevic says that the time for emerging markets came quite a while ago. They have over 50% of the world's GDP, 50% of the world's capital expenditures, 75% of the cell phone market, over 50% of the world's car consumption, over 30% of the global equity market cap, but only 17% of the total government debt. He believes their time as come. Dimitrijevic said that emerging markets were growing prior to the recession at six or seven percent, but shrank during the recession. During the recession, they fell 1%, as opposed to developed markets which shrank at 4%. He does not think we will see acceleration in the emerging markets, particularly China as the country gets larger. He does believe that growth in the frontier markets will pick up. He says that the non-BRICs are bigger than U.S. and Europe as a group. Dimitrijevic is invested in twenty eight different frontier markets, and likes Qatar, and Bangladesh particularly. He only invests in public securities, as he wants the ability to short, and have liquidity. He stays away from private equity and other non liquid securities. The trend among Korea is that it is exporting more and more to emerging markets, and less to the U.S. When investing, Whitman looks for four characteristics in a particular common stock. It needs a super strong financial position, it has to be priced at huge discounts, at least 25%, sometimes as high as 60% to readily attained net asset value. He will not invest unless there is full and comprehensive disclosure in English, and the company uses one of the "big 4 accounting firms" for audits. Whitman buy companies where the NAV growth will be at least double digit figures. He mentioned that sixty percent of the investments of Third Avenue are in Asia, with large percent in Hong Kong who also have presences in mainland China. He has been in these securities since 2005, and has seen an average rise in net asset value of 14%. Whitman thinks opportunities in East Asia are better than anywhere else in the world over next 5-10 years. One of his large investments in Posco PKX, despite having a very concentrated portfolio. Soctt Kalb said that 40% of Korea's sovereign wealth fund is invested in Asia. Half of KIC's money comes from commodity surpluses, and the rest from currency surpluses. He notes that a large majority of sovereign wealth funds have only been formed in the last ten years, including KIC. Kalb said that he does not invest domestically in Korea, but he has twenty five percent of his assets in emerging markets. He did note that he has just as much money in the U.S. as he does in emerging markets.