How to Be an Old Tai Chi Master

November, 23 2012

Kind of like comparing Bruce Lee’s kung fu speed to an old tai chi master’s fluid control. Speed doesn’t matter as much as intention. Goal doesn’t matter as much as process.

Consider the past 30-odd years in Central and Eastern Europe… The fall of the Berlin Wall marks the lurch forward for countries like Poland and the Czech Republic, but it took longer than a generation for these countries to make it onto our emerging market radar – and for funds to break down the investment walls, too. Or consider the hectic run-up of the Asian Tigers that eventually collapsed market darlings like Thailand and Korea, and knocked them back a decade or more.

Now, both of these regions are considered the next “hot spots.”

The point is, these markets aren’t new stories, untapped or untried… One man’s frontier market is another man’s backyard, and the arc of these markets extends toward infinity.

The rise of China, Russia, India and Brazil has given investors huge gains, and of course we want more… we want to know what’s next, and where. But while we’re asking these questions, there are already multinational companies setting up shop in places like Bangladesh and Peru, or mining virgin land in Colombia.

The “ground floor” is already filled with investors.

The Three Pillars for Emerging Markets

We’re focused on process, not targets. For emerging markets, we’re focused on three pillars for growth: economy, markets and people.

Key economic data are things like unemployment, real GDP growth, industrial growth and public debt. And for investors, we have to take into account actual market moves to find out if economic policies are actually benefiting the markets. None of these factors are flash-in-the-pan buy signals for certain markets. Some of them take a long time forming a trend, and build up over years or decades.

The most important pillar for long-term macro investors is people… demographics. This pillar informs so many important factors, like domestic demand, energy use and infrastructure needs.

Our portfolio recommendations strongly reflects the people pillar, all have a big demographical component.  These are big, long-term movements, shifting demand, growth and investments. In the face of these epic shifts, noise doesn’t matter.

See also our previous comment  : Scouting The Triple D (Diesel, Dust, Dreams) Markets