Move over BRIC, here comes TIMP - Turkey, Indonesia, Mexico, PH
03/29/2013
LONG BEACH, California -- One day you're a hot young thing and everybody loves you. Then suddenly you're more mature, move a bit slower, and some hotter thing is threatening to replace you.
That cruel reality confronts the four large emerging stock markets known as the BRICs: Brazil, Russia, India and China. These erstwhile ingénues have struggled - the MSCI BRIC Index fell 6.5 percent in the 12 months through March 25 - while four smaller markets with an acronym of their own - Turkey, Indonesia, Mexico and the Philippines, the TIMPs - have excelled, recording gains ranging from 9.4 percent for Indonesia to 37.7 percent for the Philippines.
The TIMPs are blessed with rapid growth, as are many emerging economies. The International Monetary Fund forecasts inflation-adjusted increases in gross domestic product this year of 3.5 percent for Mexico and Turkey, 4.8 percent for the Philippines and 6.3 percent for Indonesia.
What made the TIMPs stand out to Bob Turner, who coined the term and is chief investment officer of Turner Investment Partners, a Berwyn, Pennsylvania, asset management firm, is that they possess qualities that should keep them and their stock markets expanding rapidly and profitably. These include favorable demographics and strengthening economies and political institutions.
"They have young populations, with a high number of workers to retirees," Turner explained. "They also have infrastructure that needs to be built out and banking systems that are underleveraged." He meant that individuals and governments are not overextended on credit, unlike in many mature countries, leaving room to borrow more to fuel growth.
But not every fast-growing small economy qualifies as a TIMP for Turner. He dismissed other countries that also have young populations and fast growth potential because they lack liquid stock markets, diverse industrial bases or adequate financial and legal systems.
APPEALING IDIOSYNCRACIES
Each TIMP country has some idiosyncratic feature that adds to its appeal, Turner said. He highlighted Turkey's location, which allows it to bridge Asia and Europe along one axis and Russia and the Arab world along the other; Mexico's "manufacturing renaissance"; Indonesia's middle class, which is growing swiftly by Asian standards; and the Philippines' booming call center industry.
Rick Schmidt, co-manager of the Harding Loevner Emerging Markets Fund, identified many of the same pluses in the TIMPs as Turner. However, Schmidt prefers to order a la carte, as it were, rather than taking the whole set menu.
"The demographics are clearly more attractive in those countries," he said. "I like the markets. I just don't like the concept of grouping them together."
Viewing them as a single entity might keep investors from scouting around for more productive markets if conditions in any of these four become less favorable, he cautioned. He also wonders if their returns are too good to last.
"All of these stories are true, and the markets have done extremely well as a result," Schmidt observed. "Is past performance a guarantee of future results?" He doesn't think so in the Philippines, which he said he's avoiding due to high valuations, although he has holdings in the other three. The MSCI Philippines Investable Market Index recently traded at a price-earnings ratio of 19, compared to 14 for the Standard & Poor's 500.
Scott Klimo, co-manager of the Amana Developing World Fund, expressed similar concerns about the Philippines, but he finds the TIMPs' collective future sufficiently bright to say that they "are certainly among the countries I feel more enthusiastic about." He encourages small investors to get exposure through funds rather than individual stocks, however, because the markets are relatively obscure.
Exchange-traded funds that focus on the TIMPs include iShares MSCI Indonesia Investable Market Index Fund; Market Vectors Indonesia Index ETF; iShares MSCI Philippines Investable Market Index ETF; iShares MSCI Turkey Investable Market Index Fund and iShares MSCI Mexico Investable Market Index Fund.
Investors who would like to give individual issues a try can find several TIMP stocks with American depositary receipts, shares denominated in dollars and traded on U.S. markets.
Klimo is a fan of phone service providers across the TIMPs, including Perusahaan Perseroan (Persero) Telekomunikasi Indonesia Tbk PT and Indosat Tbk PT in Indonesia; Turkcell Iletisim Hizmetleri AS in Turkey and America Movil SAB de CV in Mexico.
America Movil could face additional competition as the government proceeds with plans to deregulate the industry, Klimo said, but he expects the company to benefit as broadcasting is deregulated at the same time.
He professed mixed feelings about another telecom, Philippine Long Distance Telephone Co. He likes it, but not at Wednesday's price of $71, or about 18 times earnings. "I think it's a fine company, but I'm looking for a little bit better entry point," he said.
Schmidt's selections include Astra International Tbk PT, an Indonesian car manufacturer, and the Turkish bank Turkiye Garanti Bankasi AS. Both have ADRs, although trading is very thin.
He is heavily invested in Mexico through such companies as Grupo Aeroportuario del Sureste, SAB de CV, which runs the Cancun airport and is, in his view, "a fantastic business that turns the airport into a shopping mall." Other Mexican holdings include the beverage maker Fomento Economico Mexicano SAB de CV and its subsidiary Coca-Cola Femsa SAB de CV.
Turner likes Grupo Financiero Santander Mexico SAB de CV, a subsidiary of a Spanish bank; Jasa Marga Persero Tbk PT, an Indonesian toll road builder and operator, and Turkcell.
As high as his hopes are for the TIMPs, Turner acknowledges potential hazards.
"With emerging countries, there is always sovereign risk - for instance a new leader who comes in and is less capitalistic," he said. Also, "any global slowdown has a bigger effect on emerging countries."
He expects the TIMPs, nevertheless, to stay hot for the foreseeable future as they travel the same path to progress as earlier generations - until some other hip, young things come along to replace them.
That cruel reality confronts the four large emerging stock markets known as the BRICs: Brazil, Russia, India and China. These erstwhile ingénues have struggled - the MSCI BRIC Index fell 6.5 percent in the 12 months through March 25 - while four smaller markets with an acronym of their own - Turkey, Indonesia, Mexico and the Philippines, the TIMPs - have excelled, recording gains ranging from 9.4 percent for Indonesia to 37.7 percent for the Philippines.
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| Brazil |
 |
| Russia |
 |
| India |
 |
| China |
The TIMPs are blessed with rapid growth, as are many emerging economies. The International Monetary Fund forecasts inflation-adjusted increases in gross domestic product this year of 3.5 percent for Mexico and Turkey, 4.8 percent for the Philippines and 6.3 percent for Indonesia.
 |
| Turkey |
 |
| Indonesia |
 |
| Mexico |
 |
| Philippines |
What made the TIMPs stand out to Bob Turner, who coined the term and is chief investment officer of Turner Investment Partners, a Berwyn, Pennsylvania, asset management firm, is that they possess qualities that should keep them and their stock markets expanding rapidly and profitably. These include favorable demographics and strengthening economies and political institutions.
"They have young populations, with a high number of workers to retirees," Turner explained. "They also have infrastructure that needs to be built out and banking systems that are underleveraged." He meant that individuals and governments are not overextended on credit, unlike in many mature countries, leaving room to borrow more to fuel growth.
But not every fast-growing small economy qualifies as a TIMP for Turner. He dismissed other countries that also have young populations and fast growth potential because they lack liquid stock markets, diverse industrial bases or adequate financial and legal systems.
APPEALING IDIOSYNCRACIES
Each TIMP country has some idiosyncratic feature that adds to its appeal, Turner said. He highlighted Turkey's location, which allows it to bridge Asia and Europe along one axis and Russia and the Arab world along the other; Mexico's "manufacturing renaissance"; Indonesia's middle class, which is growing swiftly by Asian standards; and the Philippines' booming call center industry.
Rick Schmidt, co-manager of the Harding Loevner Emerging Markets Fund, identified many of the same pluses in the TIMPs as Turner. However, Schmidt prefers to order a la carte, as it were, rather than taking the whole set menu.
"The demographics are clearly more attractive in those countries," he said. "I like the markets. I just don't like the concept of grouping them together."
Viewing them as a single entity might keep investors from scouting around for more productive markets if conditions in any of these four become less favorable, he cautioned. He also wonders if their returns are too good to last.
"All of these stories are true, and the markets have done extremely well as a result," Schmidt observed. "Is past performance a guarantee of future results?" He doesn't think so in the Philippines, which he said he's avoiding due to high valuations, although he has holdings in the other three. The MSCI Philippines Investable Market Index recently traded at a price-earnings ratio of 19, compared to 14 for the Standard & Poor's 500.
Scott Klimo, co-manager of the Amana Developing World Fund, expressed similar concerns about the Philippines, but he finds the TIMPs' collective future sufficiently bright to say that they "are certainly among the countries I feel more enthusiastic about." He encourages small investors to get exposure through funds rather than individual stocks, however, because the markets are relatively obscure.
Exchange-traded funds that focus on the TIMPs include iShares MSCI Indonesia Investable Market Index Fund; Market Vectors Indonesia Index ETF; iShares MSCI Philippines Investable Market Index ETF; iShares MSCI Turkey Investable Market Index Fund and iShares MSCI Mexico Investable Market Index Fund.
Investors who would like to give individual issues a try can find several TIMP stocks with American depositary receipts, shares denominated in dollars and traded on U.S. markets.
Klimo is a fan of phone service providers across the TIMPs, including Perusahaan Perseroan (Persero) Telekomunikasi Indonesia Tbk PT and Indosat Tbk PT in Indonesia; Turkcell Iletisim Hizmetleri AS in Turkey and America Movil SAB de CV in Mexico.
America Movil could face additional competition as the government proceeds with plans to deregulate the industry, Klimo said, but he expects the company to benefit as broadcasting is deregulated at the same time.
He professed mixed feelings about another telecom, Philippine Long Distance Telephone Co. He likes it, but not at Wednesday's price of $71, or about 18 times earnings. "I think it's a fine company, but I'm looking for a little bit better entry point," he said.
Schmidt's selections include Astra International Tbk PT, an Indonesian car manufacturer, and the Turkish bank Turkiye Garanti Bankasi AS. Both have ADRs, although trading is very thin.
He is heavily invested in Mexico through such companies as Grupo Aeroportuario del Sureste, SAB de CV, which runs the Cancun airport and is, in his view, "a fantastic business that turns the airport into a shopping mall." Other Mexican holdings include the beverage maker Fomento Economico Mexicano SAB de CV and its subsidiary Coca-Cola Femsa SAB de CV.
Turner likes Grupo Financiero Santander Mexico SAB de CV, a subsidiary of a Spanish bank; Jasa Marga Persero Tbk PT, an Indonesian toll road builder and operator, and Turkcell.
As high as his hopes are for the TIMPs, Turner acknowledges potential hazards.
"With emerging countries, there is always sovereign risk - for instance a new leader who comes in and is less capitalistic," he said. Also, "any global slowdown has a bigger effect on emerging countries."
He expects the TIMPs, nevertheless, to stay hot for the foreseeable future as they travel the same path to progress as earlier generations - until some other hip, young things come along to replace them.
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