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.

 

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...

 

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 .....

 

@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.

 

@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.

 

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.

 

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.

 

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).

 

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.

 

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.

 

I notice XAW has 13% allocated to emerging markets so you have to watch these all in one funds.

 

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.

 

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:

No, there are big differences. In North America and Europe, I can actually sue these companies (we investors do this all the time). I can also sue individual directors, executives, accounting firms, etc and I have a reasonable expectation of justice. I can shame them in the media and launch broader actions for justice.

And when I do, I don't have to fear an autocratic regime sending hit men after me. Try this in Russia, China, or Saudi Arabia and see what happens when you challenge the government-linked corporations. You might end up, quite literally, hacked into pieces.

 

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 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?

 

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.

 

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.

 

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.

 

Are companies from emerging markets more corrupt than companies here? ¯\(ツ)/¯ There is corruption everywhere. To avoid investing in immoral companies, you should pick companies based on their behavior, not their country of origin.

 

@MrMatt : I see. That is a good point.

@Just a Guy : Yes for sure. Getting accurate info is another thing that was of concern for me. What would you say is your way to get info on individual companies? go to yahoo finance and just read up on them?

@latebuyer : That is interesting. Although I always check the breakdown of the fund before i buy it.

@Tostig : Yeah for sure. There are definitely companies in NA you should avoid. I usually invest in ETFs but try my best to do research on companies I am buying individual stocks from.

 

Personally I don’t like finance sites too much, they tend to have very biased advice, but I’ll use them for financial papers like annual reports And stock price. Most of the time I’ll just research the company in general. I want to know more about public opinion and their products.

 

I see. That makes sense. I find sometimes it is hard to get information on companies because most of the information is on their own website and of course it will be biased towards showing their company in a really good light.

 

True, but if everyone use Heinz ketchup, uses an iPhone, drinks coke, that kind of bias points to good investments usually, at least a starting point. I never saw hardwood floors from sino-Forrest, and shocking they turned out to be a scam. If nortel is selling and financing its products while reporting both as profits, something strange may be going on.

 

I just go international with VDU or I-XUS and buy a bunch of big companies and financial services in countries around the world. I am not at a stage where I need every best point at a higher risk so I do not chase anything emerging by explicit design.

I might go lighter on VTI and swing to VBR on a small cap tilt in month or two in the US market - that is as flamboyant as I go chasing more returns.

 

@Just a Guy : That is a good point.

@Ponderling :Thanks for the information.

 

Here's another reason I stick to North American & European stocks: regulatory concerns on our side.

Recent US executive orders have banned the holding of certain Chinese stocks. It includes American ADRs and even a Canadian cross listing.

According to my connections on Bay Street, this will adversely affect even Canadian ETFs which had positions in these stocks. This forces Canadian fund managers to modify their holdings for a variety of reasons, to be compliant with US regulations.

I think that illustrates one problem with "emerging market" or distant foreign holdings. Because they're not on our turf, there are variety of potential regulatory or legal problems -- both on the foreign side and our own side.

Thinking about regulatory / legal smoothness, Canadian and American stocks are definitely the most predictable. Europe would be next, and Japan too I think (since it's a mature first world country with a well-developed regulatory framework and good relationship with the western allies).

But once you venture into other zones I think these kinds of problem scan start popping up. Who knows, in a few years it might not even be legal to hold Chinese stocks. What are you going to do if you committed to a large emerging/China position? You will be forced to liquidate at a low point.

 

Yes, I agree, Political risk is one of the single biggest investment risks.
It's also obvious that we also have a pseudo political risk from big tech.

Just be sure to include this risk premium in your investment decisions.
Unfortunately this again hurts the emerging markets and further restricts their ability to raise capital.

So when you look at those pictures of extreme poverty, you have to consider what are their opportunities, and by restricting their ability to access capital, how are they going to improve their situation.

That being said, India, despite it's internal politics, does benefit from the European influence. Very messy, but a LOT of opportunity.

Myself I'm very leery of political risk, I'd prefer to invest in a major international (Unilever or P&G) and let them sort it out.

 

If ethics were the only factor in investing, I wouldn't own any stocks in BMO,TD, insurance companies or telecommunication and TV companies. It's companies like these that pissed me off as a customer. I looked at them as an investor because it's their kind of practices that are making money for them.

I'm sure shareholders are very happy with dividends from Extendicare but how many of them are willing to live or send their parents to live in facilities run by Extendicare?

 

thics were the only factor in investing, I wouldn't own any stocks in BMO,TD, insurance companies or telecommunication and TV companies. It's companies like these that pissed me off as a customer. I looked at them as an investor because it's their kind of practices that are making money for them.

I'm sure shareholders are very happy with dividends from Extendicare but how many of them are willing to live or send their parents to live in facilities run by Extendicare

@james4beach :Certain chinese companies getting banned seems similar to what another user said. Yes for now I am glad I did not go into emerging markets.

@MrMatt : What do you mean when you say india benefits from european influence? I am not too familiar with their market situation. Are you talking about european companies being in india? Also, I am invested in BNS as well. i was unaware they introduced racial quotas. Sounds like they are just pandering.

@dcris07 :That is interesting. I have not heard of those at all. I agree a bit with others it may be getting a bit political and just made for people in a niche but I will look more into it.


I hear you on that point definitely understand why many people feel that ESG investing has gotten political and come off as just a marketing tool. I think its important to note that ESG investing especially in ETF's is just getting started and will only get better and more aligned with peoples views in the future. Companies all over the world are beginning to consider how they operate their businesses and how they affect the world around them and they are definitely aware of the fact that many people care about ESG issues. Investors do speak with their wallets and many will only invest in companies that have certain ESG scores. Take a look at MSCI's process for determining ESG scores : ESG Investing: ESG Ratings

Many products including the BMO ETFS i mentioned last week use MSCI indices that are built with a robust process to determine company inclusion. To sum it up i would say that we are at the beginning of this investment juncture and the standard for ESG investing will only rise in the future and many investors will start incorporating in their asset allocation decisions. Institutions, pension funds, mutual fund companies have already begun and i do not see this trend slowing down anytime soon.

Hope this provides some better context for everyone.

 

Not sure if it's really even possible to draw a line on ethnical/non-ethical with good accuracy for companies that most people invest in. What we see as outside is probably just a drop in the ocean of what is happening in the side - things that never surface. If you are going to get involved in a company - as in boards etc., then yea this is a more valid question. But for generic investing, I'm not sure if it's even worth thinking too much about.

Maybe in the future when we have enough real proponents and demand for "green" everything, those companies that have adhered to strict environmental rules could have an edge in bring a lot of people's primary pick - some day in the future. But at the moment, the truth (IMHO) is that there is very little ethics in the investment decision making process.