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Discussion Starter #1
Hello All,

I am trying to nail down an asset allocation for myself. So far I have got it mostly down (North american markets, developed markets, some canadian bonds, some canadian high dividend stocks). Recently I was reading a book called smarter investing. It talked about adding in the emerging market to your asset allocation because there is lots of future growth estimated to be there. Also, developed markets are expected to not average as much returns as they once did. That is just a prediction but something I am hearing from various sources.

Now I am open to getting an ETF that tracks emerging markets but one thing is stopping me. I keep hearing about corruption in the developing nations, human rights issues, lack of freedoms etc. I wanted to know how other investors saw the emerging markets. Now do not get me wrong. I am not boyscout but I was just interested in how others see it. Do you see it as just another opportunity get more returns year over year or do you see yourself somehow facilitating the negative things that are going on around there? Do you think people will invest regardless of the issues there or are people actively boycotting those markets?
 

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If the jurisdiction is too corrupt it's a problem.

However if there is no investment, no capital there is no way to address the poverty, and in some areas it's pretty bad.

Building up industry will raise the standard of living for the people there.

If you can get people from having nothing, or working for pennies a day, to having a job, where they get several pennies a day, or even a dollar, that's WAY better for them.
So I say, because I care about people, give them opportunity.

Also since there are reservations, and risk, in these areas, the returns can be quite good.


Secondly we have to push for proper enforcement of anti corruption laws.
Corruption is bad for pretty much everyone, and there are efforts to stamp it out. There will be poltiical interference (Trudeau and SNC), but at least it's technically illegal.


Finally, if being too abusive costs you your investments to be much richer, the corrupt and exploitive leaders will actually benefit from being "good enough" to not lose their access to your money.

Yes I see problems with giving money to corrupt leaders.
But I think this is outweighed by the benefits to the people there, my pocketbook, and incentivises improvements.

Also iPhone factory protests can help get public attention to the conditions.
 

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Not sure why you have any interest right now. It’s currently a once in a decade opportunity to make huge returns in the regular market, what’s the appeal of going to potentially corrupt ones?

If the regular market wasn’t doing so well, emerging markets may be worth a look, but right now there is no need to get into speculative stuff when stuff we know and use daily is doing gangbusters...
 

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Separate from that, presumably you are all aware that MSCI, FTSE and S&P Global are dropping a number of Chinese companies from their indices.
Bloomberg

Emerging Markets has always been on my 'no go' list. Too much wild west, lack of regulation, shenanigans, corruption, currency devaluations, IMF rescues, etc. I probably do own a bit of EM in a few ETFs but would be happy to do without.

Canadian Table of Periodic Returns presents the volatility of EM. Take Gravol .....
 

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Discussion Starter #5
@MrMatt :That is an interesting way of looking at it. I never even thought of it that way in the sense that it helps build up the underdeveloped economies.

@Just a Guy :The dow jones is back to its precovid levels and so is the S&P/TSX meaning that a lot of the discounted stocks have bounced back. Or do you still feel that their are a lot of discounted stocks to pick up?

@AltaRed : That is very interesting and it is the first time I have heard of this. It is nice to hear then that some companies are getting excluded from the markets based on their behavior on the world stage. That is interesting to see that chart. Thanks for sharing.
 

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I also agree with JustaGuy, I was just responding to your moral concerns.

I think that fairness, lack of corruption and human rights are competitive advantages There is a feedback loop there, which is why it is so important that we protect them.

That's why I'm so passionate about human rights abuses, and politically focused.
 

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Juggernau, my crystal ball is no better than anyone else’, all I know is I’ve been easily getting double, if not triple digit returns over the past few months, with no signs of things slowing. The market is irrational I don’t predict its going to become sane anytime soon. I hear predictions of another crash soon, so we can do this ride allover again.
 

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Hello All,

I am trying to nail down an asset allocation for myself. So far I have got it mostly down (North american markets, developed markets, some canadian bonds, some canadian high dividend stocks).

Now I am open to getting an ETF that tracks emerging markets but one thing is stopping me. I keep hearing about corruption...
The issues you are concerned about are a far greater concern if you plan to buy shares in individual companies or an ETF for a specific country (as opposed to a broad based ETF).
 

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@AltaRed : That is very interesting and it is the first time I have heard of this. It is nice to hear then that some companies are getting excluded from the markets based on their behavior on the world stage. That is interesting to see that chart. Thanks for sharing.
To be clear, most companies being dropped from the indices are those the White House is blacklisting for various reasons, e.g. theft of IP, vehicle for Chinese intelligence, politics, etc. Which speaks to the ethics and morals of those same companies even if they likely have no choice from their political masters.
 

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The other problem with emerging markets is the difficulties in getting true information about the companies. I remember many “highly rated“ companies turning out to be scams, despite being promoted by respectable brokerage firms.
 

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I was surprised to find VEQT holds 10% allocation to emerging markets and that even excludes soth korea. I am not very happy about it as i thought emerging markets were riskier.
 

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The other problem with emerging markets is the difficulties in getting true information about the companies. I remember many “highly rated“ companies turning out to be scams, despite being promoted by respectable brokerage firms.
That's part of the corruption, that makes it riskier, and also makes it harder for legitimate companies to attract capital.

Corruption and lack of fairness is a scourge, and it's bad for everyone.
 

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I was surprised to find VEQT holds 10% allocation to emerging markets and that even excludes soth korea. I am not very happy about it as i thought emerging markets were riskier.
I notice XAW has 13% allocated to emerging markets so you have to watch these all in one funds.
Buy XWD if you are concerned by a 10% exposure to EM. There's no EM in XWD.

I'm personally more concerned about the home bias of VEQT which has 30% exposure to Canada. It's also a way to add volatility to the portfolio, because Canada is highly concentrated.
 

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I don't see emerging markets as all that different from the North American markets. If I had to guess, they would be equivalent to the Russell 2000.

In terms of corruption, companies of North America aren't exactly squeaky clean either. Even the Vatican isn't immune to corruption. Here are some names to remind you:

Tycoelectronics
Nortel
Airbus
SNC-Lavalin
Bombardier
Hollinger
Bre-X

And then there are LTC facilities that operate in Ontario such as
Rivera
Chartwell
Exendicare

I could add that the Bloomberg/Schumer report and the Paulson report of 2007 were in response to corporate lobbyist calling for relaxing investment regulations because the US wasn't keeping up with the aggressiveness of the EU markets. Well, regulations were relaxed and the financial crisis occurred.

You never know what's going to show up until they do. So keep doing what you normally do and have a game plan because after the bad news hits, sometimes they rebound, sometimes they don't.
 

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Tostig,

true North America has its share of corrupt companies...the difference between NA and emerging markets is you know the companies to avoid as you are able to list them...can you provide a list of corrupt companies in the emerging markets?
 

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Like I said, you never kn
Tostig,

true North America has its share of corrupt companies...the difference between NA and emerging markets is you know the companies to avoid as you are able to list them...can you provide a list of corrupt companies in the emerging markets?
Like I said, you never know what's going to show up until it does. Do you really know who to avoid right now that are in NA market index ETFs? I've been focusing on investing in index ETFs for Nasdaq, TSX and S&P and I have XIN. So what's the difference between these and emerging markets ETFs in terms of being able to identify corrupt companies? Not much.

I was on a flight somewhere and listening to an interview with the guy who wrote the book, Take Your Money and Run. It must have been after the Junk Bond crash of 1987. He said to invest in Junk Bonds for the high yield, Even if 1 out of 10 defaults, you still make enough from the remaining 9 to net a profit. Isn't that the same kind of risk if you're an IPO investor or an investor in small cap or penny stocks?
 

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Well, I remember talking with another guy about Nortel and it’s practices long before they collapsed. We both owned companies and had them approach us for business. Bombardier has been well known for years, sMc-lavlin was easy to avoid. Never got sucked into bre-x.

I also avoided hang-feng, magao and sinoforrest despite many firms heavily promoting them As sure things. All it took was a little common sense and patience.

I don’t advocate buying etfs because they get stuffed full of things others think are good.I stock pick and buy stuff I think is good. So far, I’ve managed to avoid every company on your list and, as I pointed out, suspected many of them to be corrupt based on my own research, long before the “experts” did.

personally, I only buy stocks for companies I know and understand, I don’t jump on bandwagons.
 

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I didn't investing in any of those companies either. No, sorry, I did buy Nortel on a dip and Bombardier on a dip but they didn't work out. I did make money on Placer Dome. Although, there were never any big issues with them, Canadian mining companies have the worse reputation around the world as being violators of human rights and the environment.

If I dug into every company of those index ETFs for companies to avoid, I would end up not investing in any of them. My own individual stock picking skills had been mediocre. I've won big on some and lost big on some. So I might as well cycle through the good companies I've hung on to since pre-financial crisis and those NA index ETFs.
 

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I also tend to wait for the crash which happens every ten years to start buying. That way the stocked generally go up. Since I only buy “good“ companies, in my opinion, I’ve done very well with my stock picking. This crisis I bought things like husky, Disney, coke, live nation, Boston pizza, TD, etc. Some of the companies, like husky, I didn’t really like, but it was $3, so I couldn’t resist.
 
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