Author Topic: Emerging markets - pulling the trigger soon  (Read 3312 times)

settlement

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Emerging markets - pulling the trigger soon
« on: October 24, 2015, 02:51:14 AM »
Hi all,

I'm 25. My portfolio is 80% stocks, 20% cash, + 6 months living expenses.
Within the 80% stocks I have 75% MSCI World and want to invest the other 25% in EM.

I haven't bought into an EM ETF yet but was thinking of Comsgage EM which has a TER of 0.25%. I believe it is a synthetic fund.

Thoughts on this? Will be investing in with degiro from my irish bank account but am currently australian resident

SpiritualGangsta

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Re: Emerging markets - pulling the trigger soon
« Reply #1 on: October 25, 2015, 05:35:24 PM »
I love the long-term prospects of emerging markets..
However... many of their economics are based on natural resource exports. These resources "commodities" are in the midst of a massive bear market.. thus dragging down emerging market economies with them.

On top of this.. most of the emerging market funds have a significant exposure to China.. which is slowing down considerably...

Here are some fun Chinese Economic stats:

China export trade: -8.8% year to date
China import trade: -17.6% year to date
China imports from Australia: -27.3% year over year
Industrial output crude steel: -3% year to date
Cement output: -3.2% year over year
Industrial output electricity: -3.1% year over year
China Manufacturing Purchasing Managers Index: 49.8 (below 50 is contractionary)
China Services Purchasing Managers Index: 50.5 (below 50 is contractionary)
Railway freight volume: -17.34% year over year
Electricity total energy consumption: -.20% year over year
Consumer price index (CPI): +1.6% year over year
Producer price index (PPI): -5.9% year over year, 43 consecutive months of declines
China hot rolled steel price index: -35.5% year to date
Fixed asset investment: +10.3% (averaged +23% 2009-2014)
Retail sales: +10.9% the slowest growth in 11 years
Shanghai Stock Exchange Composite Index: -30% since June

I think you will be able to purchase good Emerging Market ETFs such as: VWO sometime mid next year at a much lower price point..

Most people on this forum will tell you I'm an idiot and to BUY, BUY, BUY now (with no thesis, just religious belief markets go up)... which is fine with me.. I just advise that you do your own homework and do what is right for you.. If you can build a case to buy emerging markets today.. then back up the truck. IF you do build a case/thesis, or have one.. please post it.. I love a good counter thesis to help expand my narrow view.

There Are None So Blind As Those Who Will Not See

innerscorecard

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Re: Emerging markets - pulling the trigger soon
« Reply #2 on: October 25, 2015, 05:47:08 PM »
...and those are the government stats. People talk about GDP not being reliable, but the government isn't dumb - it knows people look at some of these other things as well.

I'd prefer to look at things such as imports with an origin of China in non-Chinese import records.

I would only also add that emerging markets aren't a monolithic entity. Their levels of exposure to China vary.
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nobodyspecial

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Re: Emerging markets - pulling the trigger soon
« Reply #3 on: October 25, 2015, 06:07:41 PM »
IF you do build a case/thesis, or have one.. please post it.. I love a good counter thesis to help expand my narrow view.
Presumably now that you have revealed the truth - the world's markets will have corrected and the price of China exposed ETFs will have dropped to the point where we should buy them ?

SpiritualGangsta

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Re: Emerging markets - pulling the trigger soon
« Reply #4 on: October 25, 2015, 08:08:06 PM »
Yep, you should back up the truck, mortgage the house, and go all in.

I am just an advocate for prudence. The world is facing a situation which as never been faced before. ZIRP.. NIRP... is new territory.
I personally don't mind sitting back on my massive stack of cash, drinking some hard cider, and waiting to see which way things turn out. If markets start to retrace back to a more realistic P/E level then I will hop off the hammock and into the market.. but until then.. I'm going to be drunk, swinging away in my wicker cocoon.

There Are None So Blind As Those Who Will Not See

dungoofed

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Re: Emerging markets - pulling the trigger soon
« Reply #5 on: October 26, 2015, 12:56:57 AM »
I would only also add that emerging markets aren't a monolithic entity.

Sorting the wheat from the chaff in this space makes it one of the few places I'd consider active management, if only they didn't charge so much for it.

ShoulderThingThatGoesUp

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Re: Emerging markets - pulling the trigger soon
« Reply #6 on: October 26, 2015, 08:38:01 AM »
SCHE has an ER of 0.14%. Pretty big difference between 0.25% and 0.14%.

EarlyStart

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Re: Emerging markets - pulling the trigger soon
« Reply #7 on: October 30, 2015, 09:31:07 PM »
I'm not one to time the markets anyway, but there's one very key aspect to this that nobody has  mentioned.

A great deal of movement in EM stocks for United States investors is based on relative dollar:EM currencies strength. The stronger the dollar, the lower EM equity prices will be, ceteris paribus. There are related currency issues with EM countries' governments and companies holding dollar-denominated debt. This has  a similar effect. The stronger the dollar is, the harder it is for these foreign entities to pay their bills.

Make no mistake. The primary factor in buying broad EM equities at an opportune time is USD strength. In a perfect world, you would buy EM stocks when the dollar is at it's peak relative to these other currencies. I don't have the slightest clue as to how you would predict this, especially given the fact that it's determined primarily by policy decisions (see: The Fed) and not economic phenomena. I wouldn't bet against EM here, but bottom fishing is difficult.

innerscorecard

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Re: Emerging markets - pulling the trigger soon
« Reply #8 on: October 30, 2015, 11:11:40 PM »
Don't you think dollar strength is determined by economic phenomena in the long run, albeit central banks in the short run?
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Heckler

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Re: Emerging markets - pulling the trigger soon
« Reply #9 on: October 31, 2015, 08:54:33 AM »
25% EM seems real high risk to me. I'm at 3% original allocation and I'm OK with the -12% loss this year.

Retire-Canada

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Re: Emerging markets - pulling the trigger soon
« Reply #10 on: October 31, 2015, 09:33:40 AM »
I shoot for ~10% of my equities in EM with VEE. YTD is + 0.37%. I'm in CAD so there are currency effects in that return vs. USD.

settlement

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Re: Emerging markets - pulling the trigger soon
« Reply #11 on: October 31, 2015, 06:08:29 PM »
Thanks for responses folks.

Any thoughts on amundi vs comstage for my EM ETF? 0.2 and 0.25% TER. These are synthetic.

Alternatively the SPDR MSCI linked below has a TER of 0.42% and is physically replicating

https://www.justetf.com/en/etf-profile.html?isin=IE00B469F816

brainfart

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Re: Emerging markets - pulling the trigger soon
« Reply #12 on: October 31, 2015, 07:51:06 PM »
You are talking mostly to Americans here. They don't know nor care about the availability and possible tax risks of owning their preferred US funds for non-US investors, so some of their replies might be kind of useless for you.
Same can be said for their refusal to diversify. For many of them 100% home bias is perfectly acceptable, they believe they can do without "third world businesses" like Samsung or "International" like 100% of Europe for example. They also preach indexing their home market, but strongly advise to time the market or even pick stocks for 50% of the global market.
You decide if such advice is useful to you.

With the MSCI World and EM you are invested in 80% or so of the global market, except some mid and small caps. Which is fine and certainly better than not investing at all, and all a new investor needs to get their feet wet. You can add the missing "Vanuatu Island Total Stock Market", "Himalayan Economy above 4000 m"and "Vietnamese Water Buffalo Industry" and whatever other exotic ETFs you consider necessary at a later date, once your invested capital exceeds a high 6 figure sum.

Both the Comstage and Amundi ETFs are equivalent to each other, as far as I know they are absolutely comparable and there's no real difference between them. If you already own Comstage then it can't hurt to choose another ETF provider.

Regarding the synthetic replication, as far as I know there aren't any ETFs for MSCI EM that are fully replicating. Optimised sampling ETFs exist, but they cost more.

If you ever decide that you prefer other ETFs you can start buying them in the future and use/sell l the unwanted ETFs for rebalancing purposes over time. Diversification over several ETF providers can't hurt either.

EarlyStart

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Re: Emerging markets - pulling the trigger soon
« Reply #13 on: October 31, 2015, 11:36:34 PM »
Don't you think dollar strength is determined by economic phenomena in the long run, albeit central banks in the short run?

Yes, and that's a fair point. Based on the OP, I gathered that a lot of emphasis was on getting the timing right, hence my short run emphasis. Maybe I read too far into that.

For what it's worth, I'd bet that EM returns over the next 5 and 10 year periods exceed US returns handily whether we're near the bottom or not.

settlement

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Re: Emerging markets - pulling the trigger soon
« Reply #14 on: November 01, 2015, 01:30:46 PM »
Thanks brainfart. Great info as usual. I was thinking of buying the ishares em etf with 0.25% TER but considering your suggestion of diversifying within etf companies I might get the amundi etf as I'm invested in msci world with ishares

settlement

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Re: Emerging markets - pulling the trigger soon
« Reply #15 on: March 18, 2017, 06:06:30 AM »
Yep, you should back up the truck, mortgage the house, and go all in.

I am just an advocate for prudence. The world is facing a situation which as never been faced before. ZIRP.. NIRP... is new territory.
I personally don't mind sitting back on my massive stack of cash, drinking some hard cider, and waiting to see which way things turn out. If markets start to retrace back to a more realistic P/E level then I will hop off the hammock and into the market.. but until then.. I'm going to be drunk, swinging away in my wicker cocoon.

18 months of market gains later. Shows the dangers of waiting for a correction

DavidAnnArbor

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Re: Emerging markets - pulling the trigger soon
« Reply #16 on: March 18, 2017, 10:24:40 AM »
Retail sales: +10.9% the slowest growth in 11 years

I think the hope for China is that they convert from a manufacturing exporting type economy toward a more consumer driven economy.
So while the retail sales are the slowest in 11 years, I'd like to see a graph showing how much slower this is historically.

Heckler

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Re: Emerging markets - pulling the trigger soon
« Reply #17 on: March 18, 2017, 10:30:10 AM »
25% EM seems real high risk to me. I'm at 3% original allocation and I'm OK with the -12% loss this year.

2015 was time to buy EM. Now I'm at VEE +7.9% not including dividends.  Still a little under 3% AA.
« Last Edit: March 18, 2017, 10:32:30 AM by Heckler »

Itchyfeet

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Re: Emerging markets - pulling the trigger soon
« Reply #18 on: March 18, 2017, 10:53:08 AM »
I bought into VDEM at 44.70 in May last year. Now trading at 53.60.

An annualized return of 24.8%.

The prize for not trying to time the market.





Retire-Canada

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Re: Emerging markets - pulling the trigger soon
« Reply #19 on: March 18, 2017, 02:16:24 PM »
The prize for not trying to time the market.

Yup. Sitting on a mattress stuffed with cash hoping you'll predict the future correctly is so silly.