As I argued on \u00a0December 25, it is unwise for non-specialists to invest directly in emerging market stocks because:<\/p>\n
A couple of new data points underscore EM risks:<\/p>\n
Dirty Oil<\/strong><\/p>\n Petrobras, the giant Brazilian oil company that Wall Street loved after huge off-shore oil finds in 2007-2008, is, as The Financial Times<\/strong> put it, \u201cawash in corruption.\u201d According to the FT, \u201cOne lower tier executive has offered to repay $100 million.\u201d As much as $20 billion may have been stolen. There is no valuation discount that would get me interested in such a stock. But I don\u2019t mind owning Schlumberger, which I assume sells plenty of services to these guys.<\/p>\n China\u2019s Purge Threatens Growth<\/strong><\/p>\n The crackdown on corruption in China is starting to raise serious questions about the country\u2019s growth prospects. Clearly, a great many projects were built by local governments over the past six years not because they made economic sense but, rather, because they would enrich corrupt officials and businessmen. This syndrome is hardly unique to China; nineteenth-century American railroad booms were great for bankers, builders and suppliers but not for European bondholders. Which is not exactly reassuring, because each of those railroad booms was followed by a multi-year depression. But, aside from the cyclical economic issues, Xi Jinping\u2019s corruption crackdown is starting to look like a purge that will hurt long-term growth. According to the FT, \u201cthe crackdown has so far led to warnings or disciplinary action for about a quarter of a million cadres.\u201d That\u2019s a lot of warnings. Apparently the best way to protect your family from the crackdown is to commit suicide, which has become so common Beijing circulated a detailed questionnaire to families to get the measure of it. \u00a0Here is why this is so worrisome: Party members are key economic decision makers; now doing their jobs properly is less important than staying alive and out of jail. One way to do that is to avoid launching big new projects. That can\u2019t be good for growth.<\/p>\n It gets worse. I learn from The New York Times<\/strong> that China\u2019s government is also reducing Internet freedom by interfering with Virtual Private Networks. This makes life miserable for knowledge workers ranging from scientists to bankers to commercial artists. When we were in Shanghai our hotel could not access the United Airlines website. This is no way to promote China\u2019s shift from a low-wage exporter to a modern service economy.<\/p>\n Copyright Thomas Doerflinger 2015. \u00a0All Rights Reserved.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" As I argued on \u00a0December 25, it is unwise for non-specialists to invest directly in emerging market stocks because: You can get exposure to EM economies with far less risk by buying U.S. or European multinationals. Emerging markets are very … Continue reading