As we break for the MLK holiday, it is a good time to look at where “January Effect” has taken us. In the case of individual stocks, there have been some good performances but the core US indices have largely consolidated the “Fiscal Cliff Deal” gains. We were up just over 4% in the [ppopup id="3860"]S&P 500 index[/ppopup], same as this time last year. Because of [ppopup id="3914"]AAPL[/ppopup], the [ppopup id="3862"]Q’s[/ppopup] are only up 3%, against 6% last year. Earnings season has started and although companies are expected to beat their well whispered numbers on the whole, the overall growth in earnings in not expected to crack much above the 3% mark. So, with unemployment still high, developed market economic growth anemic and most of the problems of the last few years being kicked down the road, it is perhaps not surprising that the markets are pausing at these levels.

But the market looks forward and we should see some New Year optimism in the form of boosted earnings expectations and aspirations. So far, most of the enthusiasm appears to be in the emerging markets with East Asia, led by China, taking point. In last week’s issue, we looked at some of the options available there. [ppopup id="3915"]FXI[/ppopup] and [ppopup id="3916"]HAO[/ppopup] look promising.

This week, we sneak a peek at two reasonable sized funds in the emerging markets that are often overlooked by investors ([ppopup id="3917"]EPI[/ppopup] at $1.3bn in assets and [ppopup id="3918"]TUR[/ppopup] at $900m in assets).

India

India is an emerging market but it can hardly be described as a new one. The BSE (Bombay Stock Exchange) started up in 1875, making it Asia’s first exchange. As a result of the markets relative maturity, [ppopup id="3917"]EPI[/ppopup] is a well balanced fund with only a quarter of its assets in financials and a good spread of Energy (21%), Information Technology (12%), Materials (11%) and Industrials (10%). Although the growth rates have cooled in the past few years, the years of strong growth and economic reform have lifted a huge segment of the population into the middle class. This has led to a huge consumption boom of everything from gold to apartments to laundry powder. India’s politics are messy and its relations with its neighbors are a work in progress, but it would be foolish to overlook the huge population and very favorable demographics (especially vis-à-vis China’s).

Turkey

Turkey is a more typical emerging market when one looks at the make-up of [ppopup id="3918"]TUR[/ppopup]. The fund is heavily weighted (52%) to financials. Industrials (12%), Consumer Staples (11%), Telecoms (8%) and Materials (6%) round out the top five sectors. Turkey is exciting because its geographic and cultural positions look very promising in the medium and longer term. As a secular Islamic state, it is well accepted in the Middle East both diplomatically and commercially. As a NATO ally, it demands a seat at the EU table (although France resists). And culturally, the Turkic people of the oil rich ex-Soviet republics along Russia’s southern border are promising consumers and business partners. Like India, Turkey has a few domestic and diplomatic issues that are far from sorted. The only cautionary note for an investor is the local currency, the Lira. Because the ETF is so heavily weighted towards financials, weakness in the currency can drag performance down.

Stick With Risk

January Effect still looks to be alive and well as developed markets hold onto gains and emerging markets show continued strength. Stay exposed to risk assets for the time being.


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