Mark Mobius is a well-known emerging market portfolio manager at Franklin Templeton Investments.  In a recent Time Magazine article, he offers his outlook on Asia, Russia, Eastern Europe and Africa.

Click here to read the article

A great advantage of travelling is that you get to see things from a different perspective. Odette and I just returned from a trip to Greece. Before leaving I admit to some apprehension as North American media focused on Greece’s economic uncertainty and our television screens provided multitudes of images of Greek strikers, rioters and all around economic and social upheaval. This is what we see on our television screens. These are sensational images and probably make for “good television”. Looking at this one might conclude that nobody would want to invest in Greece in such chaotic times.

What we don’t see on our TVs is the less sensational but profoundly more important news.  For example, Cosco the giant “China Ocean Shipping Company” has recently signed a 3.5 Billion Euro deal for a 35 year concession giving the company control of part of Athens main port of Piraeus.  The company’s chief executive, Wei Jiafu, declares that Cosco has plans to turn Piraeus into the “greatest container hub in the eastern Mediterranean.” Thus far he said he was very happy with his company’s investment in the Piraeus terminals, noting that the first four months of this year had seen an increase of 43 percent in container traffic compared to the same period last year. 

As well, in June of this year, less than 24 hours after Moody’s slashed Greece’s sovereign rating to “junk” status, the Chinese vice premier Zhang Dejiang was in Athens to sign 14 commercial agreements.  Premier Dejiang said that Beijing wants to stand by Greece in its moment of crisis. “The government is going to encourage Chinese entrepreneurs to come to Greece to make partnerships and investments,” “We are convinced that the Greek government is capable of overcoming the crisis and returning to stable growth.”

So remember what we see on TV in the evenings is only one slice of the real events and probably the most sensationalized one.

The Bank of Canada announced today that it will be increasing its key lending rate by a quarter percent to .50%.  In doing so, it becomes the first country in the G7 to increase its rates since the global recession started in 2008. 

Analysts predict that the over the next year, the Bank of Canada will gradually increase its rate another one 1-1.5%, a quarter basis point at a time.  Bank of Canada leader Mark Carney expressed that there is still considerable uncertainty in the global economic outlook, and that all future rate increases will have to be weighed carefully. 

Still, today’s announcement will mean higher borrowing costs for individuals and businesses that have loans linked to bank prime lending rates.

The next rate announcement will occur in July. 

In a 10-part series, Advisor.ca looks at top performing funds in their categories over 10 years.  In the emerging markets category, AGF Emerging Fund comes out on top.  The fund has a 10 year return of 9.1% well above the benchmark MSCI Emerging Index return of 6.2%.  The manager, Patricia Perez-Coutts has been managing the fund since 2002.  Being born and studying in Peru and living in Brazil, she has deeply-rooted understanding of the developing Latin American market.  The fund currently has a 25.5% allocation to Latin America, a couple percentage points over the benchmark index.  One of the key themes in emerging markets is the rise in consumer spending, which is why AGF Emerging is also overweight in the consumer goods and services sectors.  Patricia says that consumer spending in emerging countries has still lots of room to grow. 

The article goes on to explain that, despite emerging markets being all the rage today, they weren’t always as popular.  Several emerging economies were marked by political and economic instability in the mid 90’s, but the harsh lessons learned from that period led to debt repayment at the government level and cleaner balance sheets at the corporate level.  Also, the low interest rate period of the early 2000’s led to widespread global spending, which led to rising commodity prices and resource rich countries like Brazil (and Canada!) benefited. 

You First Portfolios will typically have around a 10% weighting emerging market sector. The risk level for emerging market funds will usually be “high”, because returns tend to be more volatile than developed equity markets. 

To read the full article click here. 

Some of you may be wondering about the effect of the Greece, Spain, Portugal and potentially soon Italy crisis on your investments. Luckily, you will recall that we have dramatically reduced your portfolio exposure to Europe last time we met. We expected volatility in that region including the UK for several months now.

Without minimizing the situation, Europe will likely have little effect on the World capitalization. It is unlikely to affect your investment in a big way over the mid or long-term. Canada will likely not be affected much at all other than through currency fluctuations. In times of uncertainty, people go back to the US dollar. That is why our dollar has dropped a little in recent days. Remember that a lower Canadian dollar is a good thing for us being an exporting country.

Also, our resources are in big demand from the expanding economies of Asia and Emerging Markets. That is really where the growth will come from going forward. Greece & Spain are a drop in the bucket compared to that.

Also important to remember, here is a quote from Chuk Wong, Dynamic Manager on this issue:

“Macro headlines encourage misjudgement and fear creates opportunity. A company’s operating fundamentals are ultimately what matters and fear-driven valuation discounts are the best friend to long-term value-oriented investors like us”.

Again, I don’t want to minimize the crisis, because it is not that black and white but given the overall global outlook, the fact that we have lowered your exposure to Europe and the US and increased Canada and Emerging Markets, I would not be overly concerned.

If we survived the near apocalypse year we just went through, we can and will eventually survive Europe’s troubles!

You may be interested in reading this articles on the subject of Greece common Tax Evasion. An improvement in the Greek Tax collection system will go a long way towards invigorating investor confidence in the region.

click here for article

Early last week, investors had several reasons to celebrate as the S&P 500 crossed the 1200 point mark (up almost 50% from this time last year), the Canadian dollar reached parity with the American dollar, and the start of the first quarter reporting season had several companies reporting better-than-expected earnings. 

However on Friday, American markets experienced their biggest drops in two months, when the Securities Exchange Commission (SEC) announced civil fraud charges against Goldman Sachs Group Inc.  The SEC alleges that a hedge fund manager associated with the financial firm helped created a mortgaged-backed investment for clients, and then bet against the investment. 

Markets opened lower Monday on morning as investors are concerned about potential long-term ramifications of this story, and whether the SEC might investigate other banks that traded similar securities.  However by Monday’s close, markets had recovered the early morning losses and finished moderately higher.

BC Finance Minster Colin Hansen presented BC’s 2010 budget this week.  He projects that BC will return to balanced budgets within three years by clamping down on virtually all spending except that on healthcare and education.  The budget forecasts a deficit of $1.7 billion, an improvement from the $2.8-billion deficit from an updated forecast last September. The provincial debt is forecast to rise to $47.7 billion, from $41.3 billion this year and the debt will top $55.8 billion by the 2012/2013 budget year.  Hansen said British Columbia did not escape the world economic meltdown as provincial revenues—especially in natural resources and taxes—plummeted by almost $3 billion.  But those revenues are expected to recover over the next three years, with British Columbia forecasting economic growth of 2.2% this year, rising to 2.7% in 2012.

Here are some of the budget highlights.

-Budget 2010 includes a new property tax deferral program for families with children under 18 for the 2010 tax year. Beginning July 1, 2010, homeowners who are financially responsible for a child under the age of 18 and have at least 15 per cent equity in their homes will be able to defer property taxes on their principal residence. Deferred taxes must be paid if the home is sold, ownership is transferred or it becomes part of an estate.  Interest on deferred taxes will be charged at the prime lending rate of interest. The rate will be set twice annually. To be eligible for the program, homeowners with financial responsibility for a child under 18 must also meet the basic eligibility requirements of the current property tax deferral programs. They must be the registered owner of the home; be a Canadian citizen or permanent resident; have lived in B.C. for at least one year prior to applying and have a currrent fire insurance policy on their home.

-Increase in homeowner grant for northern and rural home owners up to $200, bringing to $770 the amount some people will be able to receive towards their property taxes. Seniors in those areas will be able to receive up to $1,045.

- Medical Service Premiums, increased last year, are going up again for individuals and families. Individuals will pay $3.50 more per month while the premiums rise $7 per family.

-$26 million more for child-care subsidies over the next three years.

-Increased funding for full-day kindergarten to $129 million in 2012-2013, up from $44 million in 2010-2011, the first year for the program.

-An additional $150 million over three years to fully fund teachers’ wages and benefits and offset cost pressures.

- $320 million in reduced ministry spending over the next three years.

- A reduction in the number of full-time equivalents working for the government, not including service delivery agencies, from 31,284 in 2009-2010 to 27,732 by 2012-2013

As the new year begins, we wish everyone a Happy New Year and provide some GDP growth forecasts for 2010.

From a Globe Advisor article titled “Commodities Rally to Drive Provincial Rally”

Summary:
-Scotia Economist Alex Coustas makes positive growth predictions for all Canadian provinces:

-British Columbia will see GDP growth of 3.0%, driven by Asian commodity demand and port activity as well. The province should also see some benefit from the Winter Olympics.

-Alberta and Saskatchewan will see GDP growth of 2.9% and 2.8% due to strong demand for oil and potash extraction.

-Ontario and its auto sector was one of the hardest hit provinces during the recession.  However, the governement stepped in and kept automakers afloat.  Ontario will see GDP growth of 2.7%.

-Manitoba and Quebec both held up well during the recession and should see GDP growth of 2.6% and 2.2%.

-The Maritime Provinces also weathered the recession fairly well and will therefore have a less pronounced bounce back.  They will see GDP growth of around 2%.  At 2.9%, Newfoundland will have the strongest GDP growth thanks to its strong exposure to energy and mining industries.

Notes:

-Another optimistic article for Canadian markets.  As long as there is strong demand for commodities in emerging markets, Canada will continue to benefit.

-Rohit Sehgal, fund manager for Dynamic Power Canadian Growth, one of the best performing Canadian Equity funds of the past 10 years, predicts that the rebound in energy demand in developing nations could push the TSX composite index to 13,000 next year (The index is at 11,700 as of Dec 31st, 2009)