“Betting on the next BRIC economy” Nicholas Vardy

By Travis Johnson, Stock Gumshoe, July 22, 2009

I haven’t written about Nicholas Vardy and his Global Stock Investor very many times, but several folks sent in his latest teaser ad and it piqued my interest a little bit. So let’s have at it, shall we?

As you might imagine, Vardy focuses on foreign stocks — though he’s aiming for US investors so he doesn’t typically recommend stuff that it’s difficult for mainstream investors to buy, so we often see ADRs as his picks.

But this time, he’s teasing a whole country …

“BIG news… I just issued a BUY yesterday for a remarkable investment opportunity in a nation that is re-emerging as one of the world’s most exciting developing countries.

“You have all heard the rage over emerging markets and how much money there is to be made. The catch, of course is… IF you pick the right investment.

“This country has made a tremendous comeback the past few years as you will read below. Their recent successes have been reflected in the performance of their stock market. The recent pull back in global markets notwithstanding, their Stock Exchange remains up over 50% in 2009.”

So, that might tell you what this country is … but if not, let’s look at a few more clues:

“As one of the world’s largest Muslim nations, this country is among the top 10 most populous countries in the world after China, India, and the United States. Already among the top 20 economies in the world in terms of GDP, it’s also one of the world’s largest palm oil producers, and perhaps the world’s second-largest coal exporter. With its abundant natural resources, it has recently benefited tremendously from the China-driven commodities boom.

“Their economy is also on track to grow about 4% this year, making it only one of only a handful of major economies — including China and India — that the International Monetary Fund expects to expand in 2009. Meanwhile, it is also enjoying a new found popularity among foreign multinationals like Volkswagen and British American Tobacco.

“Much of the credit for it’s recent rise goes to the president, who has virtually stamped out Islamic terrorism; ended its civil war with renegade provinces; brought state spending under control; and launched a popular anti-corruption drive, jailing senior politicians and central bank officials.

“This is a remarkable turnaround for a country that was, until the last few years, widely viewed as the world’s biggest basket case. Before then, it was best known for its corruption, Islamic terrorism, and one of the world’s longest-running civil wars. Foreign investors stayed clear and Western analysts viewed it as the next Pakistan, rather than the next China.

“From a Basket Case with a Troubled History…to ‘Safe Haven’ During Global Financial Crisis”

So … we needn’t make the Thinkolator work too hard today, this is clearly teasing Indonesia, and it’s certainly true that Indonesia is often the world’s overlooked major emerging country — if you don’t know much about Indonesia, it is the world’s most populous muslim country, and just below the US in terms of population, with about 240 million souls spread across the thousands of islands in the Indonesia archipelago (though more than half of them live on Java).

And yes, the government — despite fears from the recent bomb blast, and concern that the East Timor separatist movement or other separatists might again get some traction — does still say that they’re targeting GDP growth of at least 4% (Though that’s a drop from the near-6% growth they expected as of last Summer).

I’m no expert on Indonesia, but it has been an interesting history, from an investment perspective — the country was almost isolationist under Suharto for decades, and opened up to Western and regional (esp. China, Japan and Singapore) trade in the last ten or twenty years, taking advantage of great stores of raw materials and a vast population of low wage workers. The economy might not have yet advanced to the point that you’d compare them to the BRIC nations, but it wouldn’t be shocking to see them supplant Russia if things keep on as they have been, perhaps we’ll see talk of the BIIC nations one day.

We didn’t get any specific clues about Indonesian investments that Vardy might favor, but I’ll tell you about three that are the likely candidates, two funds and one stock.

With any emerging economy you can usually look for a few big companies that make up the majority of the stock market, and it will usually be one major natural resource company, a big telecom firm, and one or two big banks. That’s roughly how it goes for Indonesia, too, though the lead position in the market goes to PT Astra, a conglomerate … the biggest company that it’s easy for US investors to buy is Telkom Indonesia (TLK), the major telecom firm that I wrote about for a different teaser back in May.

But if you want exposure to the whole of the Indonesian market, which makes sense if you’re buying into this story that Indonesia in general will be rising on the world stage (after all if you pick a single stock you take on dramatically more risk that the stock’s individual performance will fall behind its economy).

So if you want exposure to Indonesia, the other two easy ways are exchange traded funds — one index, and one closed-end fund.

The index fund, which aims to keep pace with an index of companies that are major players in the Indonesian economy, is the Market Vectors Indonesia Index ETF (IDX). This index is led by PT Astra and Telkom Indonesia, along with a number of big resource companies and banks, and it carries a reasonably small expense ratio of .7% (probably will go up in a year or so, it’s subsidized at the moment).

The closed-end fund is the Indonesia Fund (IF), which in the pre-ETF days was the only real way to trade a vehicle with broad exposure to Indonesia. It currently trades at about a 5% discount to its net asset value. During its history this fund has a few times traded at a premium to net asset value, but most of that was before there was a low-cost index fund as competition, the 5% discount is probably about average over the last five years or so (that’s just from eyeballing the chart, I didn’t do the math — when the global economy tanked the discount approached 20% for a brief while).

IF has much the same portfolio as IDX, but it’s more top-heavy — it’s almost 20% in Telkom Indonesia, almost three times the weighting that it gets in the index, and it holds outsize positions in Astra and a bank or two as well. IF also pays a small distribution dividend, which IDX didn’t do last year.

On the other hand, the Indonesia Fund also has a much larger expense ratio than the Index ETF (1.6% vs. .7%), so you’re counting on their ability to manage the fund to beat the index, with probably a large part of that bet resting on the shoulders of the big telecom company.

Or, of course, you could always go with the American company that is the single largest taxpayer in Indonesia — Freeport McMoran (FCX), which operates its massive gold and copper mine in Papua, Indonesia and is a huge employer … if you look at a chart of the Indonesia Fund, the Index ETF, TLK, and FCX, it’s actually TLK that has had the moderate and steady performance — both funds and FCX do a lot more swinging up and down … or at least, they have done over the past 6-24 months or so.

So what do you think? I don’t currently have any exposure to Indonesia, but the arguments for their ascendance certainly make sense — political stability is one big wild card, as are agricultural and metal commodity prices, but the economy certainly has room to grow whether or not the world economy is growing, just to catch up with development in the rest of the emerging world. If you’ve got a favorite way to play Indonesia, or the other emerging markets … or if you’ve got any information to share about the investments I’ve mentioned above, please let us know with a comment below.

And we do not currently have any reviews on board for Nicholas Vardy’s Global Stock Investor — if you’ve ever subscribed, click here to let us know what you thought. Thanks!


Related Gumshoe Articles

Leave a Reply

46 Comments on "“Betting on the next BRIC economy” Nicholas Vardy"

avatar

CrazyB
Guest
0
CrazyB
July 22, 2009 1:55 pm
I would like to comment on what may be none of my business. It seems to me that since you went to your new format several things have happened. !. Your advertisers have really increased so I assume your income has gone up as well. However, it seems to me that you are losing your audience as there does not seem to be nearly as many comments as there were say six months ago so interest seems to be down. And yes, of course investing is down but your audience was/is a loyal stick to and talk alot bunch of… Read more »
Chip Krakoff
Guest
0
July 22, 2009 2:32 pm
I have a consulting form that works in emerging markets and a blog that comments on emerging markets, and I was in Indonesia at the end of May. I have written about the country in two recent blog posts: http://www.emergingmarketsoutlook.com/?p=569 and http://www.emergingmarketsoutlook.com/?p=517 And these will show my positive outlook for Indonesia (and also Thailand, which is less favored by investors at the moment). I have recently bought IDX, which I like more than IF. Freeport is not a pure Indonesia play and it is also a mining play. For all the positive reforms in Indonesia, last year’s new mining law… Read more »
Pidd
Guest
0
Pidd
July 22, 2009 3:07 pm

I’m not sure about others,but I seldom comment, although am avid reader and investor.

Peace
Pidd

tgk222
Guest
0
tgk222
July 22, 2009 4:44 pm

Thanks for the interesting article, Travis. Another Far East ETF worth watching is the Singapore fund, EWS. Its up about 28% this year.

Bob M.
Guest
0
Bob M.
July 22, 2009 4:50 pm
Travis, note that FCX holdings are not in Papua,Indonesia but in West Papua,formerly Irian Jaya /West Irian province of Indonesia.The eastern half of New Guinea is Papua New Guinea,a sovereign nation heavily influenced by the Aussies.Re indonesian investment,well,I prefer locations where luxury hotels are not being blown up.Foreign stocks from third world countries are heavily dependent on political situations. Does this mean that Sri Lankan/Ceylon stocks will improve with the defeat of the Tamil Tigers?Can one be absolutely certain that Costa Rica will remain stable,given Honduras & Nicaragua are neighbors?United Fruit cannot call in the Marines ass was done in… Read more »
Bob M.
Guest
0
Bob M.
July 22, 2009 5:01 pm

Note too,of the ETF’s mentioned;IDX most expensive around $48,IF & EWS much cheaper around $ 7 & 9 respectively today 7/22. But their dividends are pathetic,around 2 & 6 cents quarterly respectively/ share.I’ll take the two ETF’s that I was put on to by your column,paying 11 & 12 cents/share monthly & now costing around $8/share.Thanks Travis.

Bob M.
Guest
0
Bob M.
July 22, 2009 5:10 pm

One final comment.Indonesia was known as the Dutch East Indies for centuries. The Dutch ruled with a very heavy handculminating in WW2 when the populace welcomed the Japanese as liberators,similar to the Ukrainians welcoming the Wehrmacht/SS .However, interestingly enough, in Dutch markets & even Dutch specialty stores/importers here in the USA,Indonesian specialty foods & products enjoy great popularity.Some of the best Indonesian restaurants in the world are located in the Netherlands.

Bob M.
Guest
0
Bob M.
July 22, 2009 5:20 pm

One final ,final. you mention East Timor. Most people have no idea but it used to be Portuguese Timor until the Portuguese left some years ago.It was a backwater place for Portuguese Colonial officials to retire especially after Portugal lost Angola.Many citizens have Portuguese ,rather than Indonesian names similar to Goa in India or the former French Pondicherry in India.

CLC
Guest
0
CLC
July 22, 2009 5:26 pm

I bought TLK back in May and am up 8.68% after todays -2.31% finish. Am watching closely but feel confident of continued growth potential.

Ken
Guest
0
Ken
July 22, 2009 6:43 pm

I’m a reader, two years I guess, and have commented once.
Love the postings – read them all.

Daniel Morel
Guest
0
July 22, 2009 7:41 pm

I’m with most of the other readers I guess. Trying to understand a lot better before I put my two cents in and look like a fool

Reuben
Guest
0
Reuben
July 22, 2009 7:44 pm

Travis,
I’m still here. I comment only once in a while, but I read your column regularly. Keep up the good work.

Michael laen
Guest
0
Michael laen
July 22, 2009 8:12 pm
Travis I am still here. I have never made a comment. But knuckle head prompted me to. So what if your making a buck. Isn’t that the american way? Dam that irritates me. I guess the clown who made that post must have forgotten how long and how much work you have done to build up your readership with probably almost no income compared to the time spent. Or better how about the hundreds of thousands of dollars you saved the fools who have believed all of the claims and solicitations just to get subscribers. Your doing a great service… Read more »
Rod Thompson
Guest
0
Rod Thompson
July 22, 2009 8:54 pm
Always remember that Corruption is King in the BRIC, I currently live/work in Brazil, and spent over 3 years in Indo. The potential for growth is staggering in both countries, but political will has to be there for real change, and to this day the real change is siphoned off into the pockets of the ruling elite. Always invest with caution and keep an eye on the political climate as it can really hurt your pocket book. but when the dust that is when to get back in and profit as they pick up the pieces and get going agian!… Read more »
Tim Dawson
Guest
0
Tim Dawson
July 22, 2009 10:35 pm
Just a quick thanks to Travis for the FREE service. I appreciate what you do and haven’t joined the irregulars because of all the material I am already reading and trying to make sense of. I wasn’t too happy about the Friday change, but hey, beggars can’t be choosers. I think the criticism has some merit and it was done respectfully. Which is more than I can say for the criticism of the criticizer. And to add my educational two cents- did you know the term “knucklehead” came from British sailing ship days when the sailors from the lower decks… Read more »
Jeffrey C. Wolski
Guest
0
Jeffrey C. Wolski
July 22, 2009 10:59 pm

Wow… a spirited banter on both sides.

Cool!

Keep up the good work, which is why I became a lifetime member. You’ve made me more money than any advisor I’ve ever had, and that’s since I started reading your posts last year.

Richard
Guest
0
Richard
July 22, 2009 11:59 pm

Travis,

Another excellent article. I rarely comment but I read everything that you write. I am still learning and one day I would like to be brave and make some meaningful comments. But as for now I believe you have a good heart and are at least sharing your ideas with the rest of us who are loyal to your news worthy materials.

God bless and keep it going.

richard

Kalter
Guest
0
Kalter
July 23, 2009 1:08 am

Rijst tafel, you almost got it right. Keep up the good work. Greetings from a dutch guy in Iraq…sighs lol.

sheeple123jump
Guest
0
sheeple123jump
July 23, 2009 1:23 am
I agree with everything everyone said. I like to think of myself as an original thinker, but everybody’s said it all…. I rarely post comments but I read your articles every day.wouldnt go a day without it. your web site is great, your writing is great. you are great. keep up the good work. I agree that its probably market sentiment making people’s investing enthusiasm down these days… might take many months for real improvement. I understand bric political climate and corruption may be a factor….but look at what the usa has going now….goldman sachs and all its cronies in… Read more »
HoMing
Guest
0
HoMing
July 23, 2009 1:24 am

Nice article and certainly worth betting on it. But I would consider Vietnam as the next BRIC-betting. Reasons: political stable and recently opened its borders for tourism and companies. No McDonalds or Burger King, just a few KFC’s in the main cities. Also notice that Vietnam is the second rice export country in the world.
Anyone betting on this one?

advantedges
Guest
0
July 23, 2009 2:22 am

How would you bet on Vietnam? YUM?

HoMing
Guest
0
HoMing
July 23, 2009 3:32 am
That is the hard part of it. It’s like betting in a casino. Most stocks or funds are like pennystocks. Not much trade and highly volatile. A quick search on Yahoo finance shows it. http://finance.yahoo.com/lookup/all?s=vietnam&t=A&m=ALL&r=3 Investing in companies like YUM, is a possibility. But these YUM-like companies or companies in other branches (telecom, autoindustries..), don’t rely on a single country like Vietnam. They are just too global. I’m still searching the right stock/fund to invest. But the choices are quite limited. I prefer to invest directly in a Vietnamees companies. Because the country is developing rapidly on its infrastructure, I… Read more »
who noze
Guest
0
who noze
July 23, 2009 6:45 am

how about a dutch co doing big busines in china among others its business is to make water drinkable sym;HOO

jeni
Guest
0
jeni
July 23, 2009 7:16 am

I, too, never comment…have much to learn and little wisdom to offer. I stumbled on your site while trying to figure out a Fool tease. I haven’t missed reading your post since. Don’t quit, you’d leave us all so very sad. And while you are at it, I hope you get/are rich!!
Thanks to all for the geography/third world politics lesson on Indonesia today. What’s to fuss about?

Les
Guest
0
Les
July 23, 2009 3:02 pm

Like many others, I rarely comment but certainly appreciate both your style and research. After reading my first two of your articles I joined “the irregulars”. You deserve our support and encouragement. Please keep up the good work.

Paul
Guest
0
Paul
July 24, 2009 12:09 pm
Interesting comments from other subscribers! I have been living in Indonesia for the past four years and have traveled here regularly since 1982. Also I have been investing here since 1998 – started during the depth of the Asian crisis. As with all underdeveloped investment destinations, it takes a long time to do one’s homework to understand the market. I think that my batting average has come up quite a bit since I first started investing here. Telkom, Indosat, Astra, BCA & Mandiri are all big “blue” chip stocks that are well covered locally by local and foreign financial analysts.… Read more »
AlanH
Guest
0
AlanH
July 24, 2009 2:52 pm

I have not made a penny from Travis’ advice….. but he’s saved me a fortune by heading me away from the schisters!! He makes me wonder, question and laugh. The only thing Id change is THAT BOW TIE….. looks like a refugee from the company christmas drinks party. Crazy B….. you have earned your name. Apply for a refund and get off the datawaves.

AlanH

destry
Guest
0
destry
July 24, 2009 11:22 pm

This is “Great”!

In it’s way, the best conversation stream I’ve seen…
An international participation
(Growing on other streams as well);
And really intelligent discourse.

Some of us have not been participating as much, or not at all in the “Forum”, since the change…I don’t know why…I read it some; But ‘just don’t feel I have anything to contribute.
Since my agenda is more investing in businesses I’d own; And as such, being a long-term investor in a short-term world; I listen more than talk (A blessing, I’m sure).

You guys are still more fun
than a rock-fight, over an open grave.

PoorOldJim
Guest
0
PoorOldJim
July 26, 2009 9:08 am

A “rock-fight” over an open grave? Now I’m really confused. Travis, you and most of your commentary contributors have saved me more money, by steering away from stuff I might have otherwise been dumb enough to buy, so keep on keepin on. Oh, and if you like bow ties, you go dude.

oniToky
Guest
0
September 12, 2010 9:43 pm

Nikspoub 6 I advise to you to look a site on which there are many articles on this question.

_____________

lavetra

get

0

Gravity Switch
Admin
11
July 22, 2009 2:16 pm
You may be right, though causality is always questionable and I can rarely really tell what drives people to read or comment. Readership is pretty consistent, and the ads on average (I think, at least) are at about the same level of intrusiveness as they’ve always been, though that fluctuates and there are actually a slightly above-average number of ads on the site right now (the redesign of the site is almost a year old now, if memory serves). Income from the site ads is down from last year, but that’s probably more due to the economy than anything else.… Read more »
AlanH
Guest
0
AlanH
July 24, 2009 3:05 pm

If you accept that its none of your business… why comment? Please delete Crazy B’s spam. It lowers the tone of this otherwise educational and enlightening blog.

AlanH

Gravity Switch
Admin
11
July 22, 2009 10:01 pm

Thanks Chip, interesting stuff.

Gravity Switch
Admin
11
July 22, 2009 10:02 pm

Thanks for the correction — being terribly uninformed on this (as so many things), I’m glad I at least got the name half right.

Greg Poulgrain
Guest
0
Greg Poulgrain
July 23, 2009 3:29 am
Following up the ‘education day’ comments on July 22:- the name for western half of the bird-shaped island of New Guinea used to be Irian Jaya but changed in last few years. Now it is divided into two Indonesian provinces:the ‘head of the bird’ is West Papua; the rest is Papua, up to the dividing boundary-line down the centre of island. (The eastern half is PNG, Papua New Guinea). Indonesia is my ‘specialist-area’ in university lecturing. My first visit to Papua/West Papua was in 1978 and I’m willing to assist with any queries or advice re investment there. regards, Dr… Read more »
Gravity Switch
Admin
11
July 22, 2009 10:04 pm

That I can definitely agree with — had some great rijsttaffel (sorry if I mangled that spelling) in Amsterdam and Haarlem many years ago.

Gravity Switch
Admin
11
July 22, 2009 10:04 pm

OK, this is officially a full-on education for the Gumshoe — thanks!

Gravity Switch
Admin
11
July 22, 2009 10:05 pm

Thanks — and don’t worry, I risk making myself look like a fool several times a day. More, if you ask my wife.

Gravity Switch
Admin
11
July 22, 2009 10:08 pm

A good point in general — most of us have become so accustomed to international investing, whether through ADRs or US multinationals or more directly, that we forget the very different investing and business environments that exist around the world … not that there’s anywhere free of corruption, but certainly it can often be a much bigger factor (often in favor of dominant or well-connected companies) in developing or authoritarian countries.

Bob M.
Guest
0
Bob M.
July 23, 2009 10:14 am

Travis,East Timor is actually the world’s newest country. Was under Indnesian rule for 24 years.UN Mandate in 1999 created new nation. I checked their new website,has great download of their national anthem.From what I read,could be interesting for investing in future. They coulsstand some resorts & hotels,currently top of the line go for $50. Their currency is the US Dollar,interesting!

Bob M.
Guest
0
Bob M.
July 23, 2009 10:27 am

The politics are the main ingredient. To expand a bit,hasn’t anyone noticed that when a new “El Presidente,El Benefactor” takes over,he/she always plays to the poor living in shacks or boxes below the mansions/high rises of the wealthy?This is true of Brazil,Asia,Venezuela, Cuba,Africa,etc.Coups & “elections” are dictated by the masses,not the elite as shown throughout history.I feel that one of the red flags to dump an ADR is to research news for a disgruntled population in that nation.

Bob M.
Guest
0
Bob M.
July 23, 2009 10:33 am

You would fuss if you were paying over $1000/year for a “newsletter” service & your stocks tanked.Travis provides a true service & cuts through the hype & B***S***.

Gravity Switch
Admin
11
July 23, 2009 11:30 am
Gravity Switch
Admin
11
July 23, 2009 11:34 am

There’s a little venture firm/investment co that runs some Vietnamese funds, one that was teased about a year ago was the Vietnam Opportunity Fund, I owned it for a while but sold at a loss.

That old info is here: http://www.stockgumshoe.com/2008/03/profit-hunter-slingshot-opportunity-in-vietnam.html

There is now a Vietnam ETF based on a FTSE index, but I think it only trades in HK and maybe Singapore. The HK symbol is 3087

Mart (the Netherlands)
Guest
0
Mart (the Netherlands)
July 23, 2009 7:05 pm

rijsttafel = rice table. if you are in holland again, i invite you to diner

Mart (the Netherlands)
Guest
0
Mart (the Netherlands)
July 23, 2009 7:09 pm

I’m a subscriber (longlife). We all know that only the sun rises for free. So, this is a one man action: if you can miss a hundred bucks, let gumshoe earn a little and… you earn more than him after that. I hate to say someone is good or bad, so do your own DD compared to all the others.

wpDiscuz