That makes me wonder - all this recession and not even one scare of CPI deflation (not asset price deflation)!! Or is that a 2010 story?
The simple reason to invest in EM's is - there is structural inflation here. Somewhere like Brazil, where we get 7% inflation and an appreciating currency - if one can time the currency swings right - is the best. Economic theory would suggest currency depreciation in an inflation heavy country. What we see is currency depreciation in potentially -ve inflation countries and appreciation in +ve inflation currencies due to capital flows. This is such a better way to generate returns.
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When you buy a stock like Mcdonald's or General electric computer or Wallgreens you are buying very good well run company. But because of the popularity of these stocks they are not great value investments. The vast majority of your gains when you buy these stocks comes from dividends not captial gains. In other words when you are investing in a very popular mature company most if not all of your gains comes from your dividends. To get lots of potential capital appreciation from your stocks you must look for companies that are out of favor and not as widely followed as these high profile blue chips.
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