The CIVETS
Colombia
The CIVETS tour begins with Colombia, which looks like an excellent candidate for future growth. In fact, With 44 million people and a gross domestic product (GDP) of $231 billion, Colombia is certainly big enough to be worth considering. In a world in which resource prices are likely to trend upwards because of Chinese and Indian demand, investment in the country's agricultural and natural-resources looks to be promising. What's more, should the U.S. Congress ever actually ratify the U.S.-Colombia Free Trade Agreement (signed all the way back in November 2006), there should be a further boost to the Columbian market. The Economist's panel of forecasters projects growth of 2.5% this year and 3.8% in 2011. But that looks much too low. The projected 2010 budget deficit equal to 3.9% of GDP and the payments deficit of 1.6% of GDP look reasonable, as does the 2.6% inflation rate. The market's Price/Earnings (P/E) ratio is 19.5, which is a little high. But when you sum it all up, Colombia is a "BUY."
Indonesia
Indonesia is another country worth mentioning, particularly under its current, competent government of Susilo Bambang Yudhoyono, in power since 2004. With 243 million people and a GDP of $521 billion, it's a substantive-enough economy to invest in. It's well diversified, with agriculture, natural resources and substantial manufacturing. The level of corruption in the society is too high to be comfortable, but it remains lower than Russia. And it's strategically situated between China and India, meaning it should benefit as both those behemoths grow. The Economist is pretty optimistic about growth, with forecasters calling for a 5.6% advance this year and 5.9% next year. The budget deficit is a reasonable 2.1% of GDP, and the current account is in surplus. With a P/E of 18, Indonesia's stock market - like the aforementioned Colombia - is a bit pricey. Even so, Indonesia is definitely one to watch.
Vietnam
Vietnam is hailed as the next China. And with good reason: Vietnam has a culture that's similar to the Red Dragon, it's an ex-Communist, one-party state, and attracts foreign investment because of its cheap labor costs. Vietnam has a population of 90 million, but a GDP of only $92.4 billion. The problem here is that the old East Asian route to riches of cheap manufacturing is pre-empted by the behemoths China and India, so Vietnam may find it much more difficult to succeed than its East Asian predecessors did during the half-century that spanned 1950-2000. The Economist is optimistic about Vietnam's growth prospects, predicting a 6.2% advance in 2010 and 7.0% in 2011. But the budget deficit is substantial at 7.7% of GDP, as is the payments deficit at 7.8% of GDP. Also highly worrisome: The inflation rate is expected to exceed 10%. Given that the stock market is small and highly speculative, and it's very difficult for a U.S. investor to buy directly, I wouldn't rush in too fast here. Still, keep an eye on this market: Vietnam is currently on the move.
Egypt
Egypt makes the CIVETS acronym work nicely, but I can't see why you would regard it as a growth economy. What's more, it is essentially a one-party dictatorship in which the dictator - Hosni Mubarak - is 82. With 80 million people and a GDP of $190 billion, Egypt is surprisingly poor - especially given its geographical location close to Europe. The Economist expects this country to grow at 5.2% in 2010 and 5.4% in 2011 (but with population growth of a full 2% annually, that's less impressive than it looks). The economy is heavily government controlled, and has few natural resources, given its excessive population. With a budget deficit of 8.7% of GDP, a payments deficit of 3.7% of GDP, an expected inflation rate of 12%, and an 82-year-old dictator, this market just doesn't look attractive to me. Thus, Egypt is currently an "AVOID."
Turkey
Turkey is a pretty decent growth economy, albeit without many natural resources.With 78 million people and a $608 billion economy, Turkey is (economically speaking) the largest of the CIVETS. In office since 2002, the current government of Recep Erdogan has done a good job on the economy. The Economist's forecasters say Turkey will grow at a 4.8% clip this year and another 4.0% in 2011. But that looks low - especially given that first-quarter growth ran at an annual rate of 11.7%. The budget deficit is 4.5% of GDP, the trade deficit 4.8% of GDP and inflation is expected to run at 10.1% in 2010. Also a concern: The public debt/GDP ratio - while well below its 2002 levels - is at 46%. Turkey has two possible paths down which it may travel, but they represent very different outcomes to investors: One is an opportunity, the other a danger. The opportunity is that Turkey finally gets a really decent free trade agreement with the European Union (EU) - without full membership - that allows it to manufacture for tariff-free sale throughout the EU market. The danger is that Erdogan reorients Turkish foreign policy towards the economic deadbeats of the Middle East. That makes Turkey a high-risk proposition. But the Turkish market's P/E is only 11. It's speculative, but on the whole Turkey is on the watch list.
South Africa
South Africa is another resource-rich economy, which is believed to be a better basis than cheap labor for market emergence. With 49 million people, a barely growing population, and a GDP of $280 billion, South Africa is a decent-sized economy. However, Economist forecasters have it growing at a rate of only 2.8% in 2010 and 3.7% in 2011. With a budget deficit of 6.3% of GDP, and a payments deficit of 5.0%, this country's finances are unattractive - even with the fact that The Economist expects inflation to run only at a tolerable 5.8%. The problem is management: The post-1994 South African governments have not shown they can run the economy well, in spite of South Africa's resource advantages. What's more, the Gini coefficient of inequality is 65 - the world's second highest - which makes the society highly unstable. The market's not cheap, either, given its P/E of 16. You may want to dabble in a gold mine or two, but even there the risks are less in places like Canada and the better bits of Latin America. For some, South Africa is too risky - and is a "HOLD," at best.
Colombia
The CIVETS tour begins with Colombia, which looks like an excellent candidate for future growth. In fact, With 44 million people and a gross domestic product (GDP) of $231 billion, Colombia is certainly big enough to be worth considering. In a world in which resource prices are likely to trend upwards because of Chinese and Indian demand, investment in the country's agricultural and natural-resources looks to be promising. What's more, should the U.S. Congress ever actually ratify the U.S.-Colombia Free Trade Agreement (signed all the way back in November 2006), there should be a further boost to the Columbian market. The Economist's panel of forecasters projects growth of 2.5% this year and 3.8% in 2011. But that looks much too low. The projected 2010 budget deficit equal to 3.9% of GDP and the payments deficit of 1.6% of GDP look reasonable, as does the 2.6% inflation rate. The market's Price/Earnings (P/E) ratio is 19.5, which is a little high. But when you sum it all up, Colombia is a "BUY."
Indonesia
Indonesia is another country worth mentioning, particularly under its current, competent government of Susilo Bambang Yudhoyono, in power since 2004. With 243 million people and a GDP of $521 billion, it's a substantive-enough economy to invest in. It's well diversified, with agriculture, natural resources and substantial manufacturing. The level of corruption in the society is too high to be comfortable, but it remains lower than Russia. And it's strategically situated between China and India, meaning it should benefit as both those behemoths grow. The Economist is pretty optimistic about growth, with forecasters calling for a 5.6% advance this year and 5.9% next year. The budget deficit is a reasonable 2.1% of GDP, and the current account is in surplus. With a P/E of 18, Indonesia's stock market - like the aforementioned Colombia - is a bit pricey. Even so, Indonesia is definitely one to watch.
Vietnam
Vietnam is hailed as the next China. And with good reason: Vietnam has a culture that's similar to the Red Dragon, it's an ex-Communist, one-party state, and attracts foreign investment because of its cheap labor costs. Vietnam has a population of 90 million, but a GDP of only $92.4 billion. The problem here is that the old East Asian route to riches of cheap manufacturing is pre-empted by the behemoths China and India, so Vietnam may find it much more difficult to succeed than its East Asian predecessors did during the half-century that spanned 1950-2000. The Economist is optimistic about Vietnam's growth prospects, predicting a 6.2% advance in 2010 and 7.0% in 2011. But the budget deficit is substantial at 7.7% of GDP, as is the payments deficit at 7.8% of GDP. Also highly worrisome: The inflation rate is expected to exceed 10%. Given that the stock market is small and highly speculative, and it's very difficult for a U.S. investor to buy directly, I wouldn't rush in too fast here. Still, keep an eye on this market: Vietnam is currently on the move.
Egypt
Egypt makes the CIVETS acronym work nicely, but I can't see why you would regard it as a growth economy. What's more, it is essentially a one-party dictatorship in which the dictator - Hosni Mubarak - is 82. With 80 million people and a GDP of $190 billion, Egypt is surprisingly poor - especially given its geographical location close to Europe. The Economist expects this country to grow at 5.2% in 2010 and 5.4% in 2011 (but with population growth of a full 2% annually, that's less impressive than it looks). The economy is heavily government controlled, and has few natural resources, given its excessive population. With a budget deficit of 8.7% of GDP, a payments deficit of 3.7% of GDP, an expected inflation rate of 12%, and an 82-year-old dictator, this market just doesn't look attractive to me. Thus, Egypt is currently an "AVOID."
Turkey
Turkey is a pretty decent growth economy, albeit without many natural resources.With 78 million people and a $608 billion economy, Turkey is (economically speaking) the largest of the CIVETS. In office since 2002, the current government of Recep Erdogan has done a good job on the economy. The Economist's forecasters say Turkey will grow at a 4.8% clip this year and another 4.0% in 2011. But that looks low - especially given that first-quarter growth ran at an annual rate of 11.7%. The budget deficit is 4.5% of GDP, the trade deficit 4.8% of GDP and inflation is expected to run at 10.1% in 2010. Also a concern: The public debt/GDP ratio - while well below its 2002 levels - is at 46%. Turkey has two possible paths down which it may travel, but they represent very different outcomes to investors: One is an opportunity, the other a danger. The opportunity is that Turkey finally gets a really decent free trade agreement with the European Union (EU) - without full membership - that allows it to manufacture for tariff-free sale throughout the EU market. The danger is that Erdogan reorients Turkish foreign policy towards the economic deadbeats of the Middle East. That makes Turkey a high-risk proposition. But the Turkish market's P/E is only 11. It's speculative, but on the whole Turkey is on the watch list.
South Africa
South Africa is another resource-rich economy, which is believed to be a better basis than cheap labor for market emergence. With 49 million people, a barely growing population, and a GDP of $280 billion, South Africa is a decent-sized economy. However, Economist forecasters have it growing at a rate of only 2.8% in 2010 and 3.7% in 2011. With a budget deficit of 6.3% of GDP, and a payments deficit of 5.0%, this country's finances are unattractive - even with the fact that The Economist expects inflation to run only at a tolerable 5.8%. The problem is management: The post-1994 South African governments have not shown they can run the economy well, in spite of South Africa's resource advantages. What's more, the Gini coefficient of inequality is 65 - the world's second highest - which makes the society highly unstable. The market's not cheap, either, given its P/E of 16. You may want to dabble in a gold mine or two, but even there the risks are less in places like Canada and the better bits of Latin America. For some, South Africa is too risky - and is a "HOLD," at best.
