Forget the BRICS, Here Come the CIVETS

09/02/2010 11:59 am EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

This just in: The world is not ending, just yet. Recent obituaries for the global recovery have, once again, proved premature. 

After a sweaty August to forget, markets around the planet rallied Wednesday in response to upbeat Asian growth statistics, as well as signs of manufacturing resilience in the US.

Australia’s economy trumped expectations with its fastest growth in three years, as mining profits trickled down to consumers.

Chinese manufacturing sentiment improved, just as Prieur du Plessis had predicted in one of this week’s excerpts. A day earlier, India had also reported the best growth in three years: a robust 8.8% even as inflation eased.

All that growth drove record-shattering Asian auto sales, with China’s soaring 59% while Japan’s jumped 47% as buyers chased expiring subsidies. Sales rose 33% in India and 21% in South Korea.

And the good news was not confined to Asia: South Africa’s manufacturing sentiment perked up as well, as did the Russian and Swedish economies, Chilean industrial output, and Colombian stocks. The latter gained 8% last month, while developed markets were flailing, and Bogota’s was not the only emerging market to do well. Thailand, Malaysia, the Philippines, Peru, and Chile also rallied.

So, wake up and smell the (expensive) coffee: The Global X/InterBolsa FTSE Colombia 20 ETF (NYSE: GXG) is up 47% year-to-date, boosted by one of the world’s hottest currencies. Jon Markman calls the chart of its leading component Ecopetrol (NYSE: EC) “a gorgeous postcard from the bull market that’s occurring in western Latin America.”

Colombia is a member of a newly fashionable CIVETS emerging-markets club, alongside Indonesia, Vietnam, Egypt, Turkey, and South Africa. Vietnam is clearly the black sheep of that flock, as it tries to shake a bear market.

Frontier markets around the world actually gained in August, boosted by rallies in Kuwait, Bahrain, Bulgaria, Tunisia, and Bangladesh. Emerging markets shed 1.6% on the whole last month, but that was only half as bad as the performance of developed counterparts. Stocks listed in the member states of the European Monetary Union lost 6% as the world waits to see how self-imposed austerity pans out.

The evidence from the penny-pinching UK is mixed: Consumer confidence is up, but manufacturing sentiment is down. And even the avatar of New Labour, Tony Blair, seems to be on board with Tory thrift.

Whereas Tokyo, which hasn’t been thrifty in decades, has just missed another opportunity to rescue the economy by offering a hodge-podge of half-measures, analysts complained. The prime minister faces a leadership challenge from a rival who’s even less popular, amid deflation.

The rest of the developed world seems afflicted with nothing worse than slow growth at the moment. In this environment, income stocks should shine. So, it’s hard to argue with Carla Pasternak’s recommendation of a UK utility paying a 6% dividend even in this economic murk, or Roger Conrad’s endorsement of a Canadian fuel distributor with an even richer yield.

US bonds won’t pay anything close to that for “an extended period,” to borrow a phrase. And the CIVETS won’t be wasting all that time. 

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