from the June 02, 2003 edition
By Thomas Watterson | Special to The Christian Science Monitor
The US stock market has been a big disappointment to investors for more than three years. At the same time, falling interest rates have cut the payments people receive from fixed-income investments. So many investors have turned to one of the few bright spots: emerging markets and emerging-market bond funds.
In spite of the increased potential risk of these funds, investors put more than $580 million into emerging-market bond funds in the first three months of this year, according to AMG Data Resources in Arcata, Calif. That's more than was invested in all of 2002, when these funds took in some $538 million. Through mid-May, inflows added up to more than $1 billion, AMG reports.
The reasons are easy to understand, says Todd Henry, a portfolio specialist at T. Rowe Price in Baltimore.
"People are looking around and saying 'Where can I get good returns?' The United States had a tremendous run in the 1990s, but it's given a lot back in the past three years," Mr. Henry says. "Some good things are going on in Europe, but we don't see much growth there for the next couple of years. So, the search for higher yields has led a lot of people to emerging-market bonds."
For the most part, these funds have rewarded investors' confidence: For the first five months of this year, the average emerging-market bond fund returned 19.8 percent, according to Morningstar Inc., in Chicago. For the three years ended May 30, funds in this group averaged over 18.1 percent. That contrasts with the Standard & Poor's 500 index of large US stocks, which returned 8.6 percent in the first five months of this year, but fell 9.4 percent annually over the past three years.
Analysts point to a number of reasons for the strong performance of emerging markets. Russia, for example, is benefiting from steadily increasing oil exports. Several Eastern European countries are cutting their deficits and taking other steps to get their economic house in order as they prepare to join the European Union. In Asia, China's robust economic growth is not only benefiting that country, but is helping other markets in the region that trade with China.
In Latin America, yields on Brazilian bonds have surged more than 10 percent since Luiz Inácio Lula da Silva was elected president last fall. Looking at Mr. da Silva's statements in previous campaigns, many investors expected him to drastically increase government spending - and debt - to revive the economy. Instead, he has pleasantly surprised global investors by pursuing a stricter economic plan than investors had expected.
But fund experts and financial planners caution that that while emerging-market funds have performed well in recent years, their continued strength depends on factors that can change quickly. For example, the Turkish government refused to allow that country to be used as a staging area for the war with Iraq. As a result, an expected financial aid package from the International Monetary Fund was drastically reduced, and prices of Turkish bonds declined.
Meanwhile, a lengthy strike in Venezuela has failed to oust President Hugo Chávez, but it has sharply reduced oil exports, an important source of revenue for Venezuela. "These funds can add some spice to a portfolio," says William Rocco, a senior fund analyst at Morningstar. "But they are very volatile."
In fact, Mr. Rocco says, investors may not need an emerging-market fund in their portfolio at all, if they already have a foreign bond fund.
Many international bond funds, as well as global funds that invest in the United States and overseas, already have some emerging-market exposure. For example, he notes that some of the Templeton Funds, such as Templeton World Fund and Templeton Foreign Fund, have relatively large allocations to emerging markets.
"So anybody who's thinking about buying one of these funds should make sure they have a need for a secondary international fund," Rocco adds.
Still, some advisers do see a need for these funds. "We have been using emerging-market bond funds in our clients' portfolios for several years,'' says Steven Enright, a certified financial planner in Westwood, N.J. Because these funds do not perform in lockstep with their developed-market counterparts, "we always felt emerging-market bond funds added a certain amount of diversification to a portfolio," Mr. Enright adds.
Even he thinks investors should be aware, however, of the potential risks of emerging markets - and limit their exposure. Enright says he would put no more than 10 percent to 15 percent of a client's fixed-income investments, or about 5 percent of the total stock-and-bond portfolio, in emerging-market funds.
"These funds can be volatile, so you're playing with fire if you go over that," he says.
A bond-fund category emerges
During the three-year stock-market slump, many investors turned to bonds in the quest for profit. Most bond funds have fared well in the sluggish economy. But one bond-fund category has stood out: emerging markets. These funds, on average, have returned nearly 20 percent this year, according to fund-tracker Morningstar Inc.
Fund Name YTD Return 1 year 3 year*
AllianceBernstein Emerging Mkt Debt A
800-227-4618 24.5% 34.3% 19.9%
PIMCO Emerging Markets Bond D
800-927-4648 22.3 28.2 25.6
Scudder Emerging Markets Income S
800-621-1048 21.2 26.3 19.1
Fidelity Advisor Emerg Mkts Inc Instl
800-522-7297 20.3 24.9 16.6
Federated International High Income A
800-341-7400 20.2 22.2 16.9
Fidelity New Markets Income
800-544-8888 20.1 25.2 16.8
TCW Galileo Emerging Markets Income I
800-386-3829 19.7 27.1 19.7
MainStay Global High Yield A
800-624-6782 19.6 23.4 17.6
T. Rowe Price Emerging Markets Bond
800-638-5660 19.3 22.1 17.3
Phoenix-Goodwin Emerging Markets Bd A
800-243-4361 18.9 21.0 13.3
Emerging Markets Bond Average 19.8 24.3 18.1
S&P 500 8.6 -9.4 -10.4
Minimum initial purchase no more than $10,000 *annualized
Source: Morningstar Inc. through 5/30 close STAFF
Eliezer Otaiza to head ambitious alphabetization program
<a href=www.vheadline.com>Venezuela's Electronic News
Posted: Sunday, June 01, 2003
By: Patrick J. O'Donoghue.
President Hugo Chavez FriasPresident Hugo Chavez Frias has appointed Captain (ret.) Eliezer Otaiza to run the national alphabetization drive announced two weeks ago. Speaking in Portuguesa state, the President confirms that the plan is big and integral involving getting 1 million Venezuelans to read and write.
Otaiza will head a presidential committee and priority will be to set up an incentive system for people who complete the course satisfactorily. The President is interested in getting people on the course to set up cooperatives and he thinks that Otaiza is the man to get the program up and running.
Another incentives is to offer credits and further training at the National Job Training Institute, which Otaiza heads.
Referring to the negotiations agreement, Chavez Frias says he will not lose the recall referendum ... "let us prepare to continue the struggle and the battle for Venezuela on all grounds."
A second Portuguesa State murder squad baffles state prosecutors
<a href=www.vheadline.com>Venezuela's Electronic News
Posted: Sunday, June 01, 2003
By: Patrick J. O'Donoghue.
According to local human rights group, a second police murder squad is operating in Portuguesa State, which has seen a startling 146 homicides this year so far. In January, the State Attorney General's Office reported 21 summary executions, 31 in February, and 33 in March ... homicides dropped in April to 28 only to rise in May to 33.
- The Attorney General's Office reports that the squad calling itself, "Exterminio II" has been sending out flyers and graffiti about its activities.
Last year, the first murder squad was discovered meriting a raid and investigation in Portuguesa State police barracks ... the surprising thing is that Portuguesa State has 800,000 inhabitants. In that investigation, 17 police officers were arrested and dismissed but what state prosecutors didn't know was that another murder squad was operating.
Investigators say they believe the second squad has contacts with criminal elements and some suggest that both squads are basically one and the same group with many members working on different levels. The second murder squad has been more discreet than the first ... executions take place at night using shotguns to murder the victims in solitary places and in the absence of witnesses.
Human rights groups suggest that the squads have been enjoying impunity, partly because the Attorney General's Office cannot protect witnesses ... 15 witnesses have been eliminated ... and partly, because judges have been threatened.
Rhythm and Melody in the prose of Jack Vance...
<a href=www.vheadline.com>Venezuela's Electronic News
Posted: Sunday, June 01, 2003
By: Gustavo Coronel
VHeadline.com commentarist Gustavo Coronel writes: Forgetting for one moment the Venezuelan situation let me share with you information on a superb writer you might want to try...When my son gave me Tolkien's "The Hobbit" and "The Lord of the Rings" as presents, back in the 80s, I developed an interest for science fiction/fantasy literature and started mining what turned out to be a gigantic reservoir of human imagination.
For a while my favorite science fiction writer became Arthur Clarke, on the strength of "Chilhood's End" and "Rendevouz with Rama". One day, however, I chose at random a book by Jack Vance and I was hooked for life. The book was "The Anome" and was the first volume of the Durdane trilogy. This was serendipitous, as science fiction readers are familiar with the enormous offering of this type of literature in the shelves of bookstores, not all of acceptable quality, I must say. In this lottery type of random choice I won first prize.
The Durdane trilogy proved to be totally enjoyable in three levels: the description of the world and regions where the stories took place. The stories themselves and, best of all, the wonderful language employed by Vance. For those who love words and phrases, Vance's work is a source of endless delight. A very apt comment by "Locus" says that Vance's characters "dwell whitin elaborate structures of social and linguistic artifice, in societies as intricately elegant as Faberge eggs...". Vance's prose is pure music, both rythmic and melodic. His prose is to, say, Asimov's what Tchaikovsky's music is to, say, Elgar's...
While Elgar based his second symphony practically on a single, beautiful theme intensely utilized, Tchaikovsky keeps bombarding us with wonderful melodies, one after the other, without expanding much on any one, like telling us: "there are many others where this one came from..."
In "The Anome," the action takes place in Shant, described by Vance as "made up of cantons only alike in their mutual distrust. Each regarded as Universal Principle its own customs, costumes, jargons and mannerisms and considered all else eccentricity". The ruler of Shant was The Anome, the faceless man. His authority derived from the torc which everybody carried around the neck. It contained an explosive which could detonate by remote control. Whoever broke the law of The Anome would lose his, her head...
The story of the trilogy has to do with the transformation of this reign of terror into a society of free men, a transformation led by a young musician called Etzwane, assisted by an envoy from Old Earth. The story is reminiscent of "The Lord of the Rings" in the sense of showing how a small and inexperienced, but determined company can change the course of history.
I became addicted to Vance. I read the Durdane trilogy, "The Gray Prince," "Big Planet," "To Live Forever," "The Dying Earth" and his relatively recent trilogy "The Cadwal Chronicles," besides other lesser work. Here is the starting paragraph in "Throy," book three of "The Cadwal Chronicles":
"Halfway along the Perseid Arm, near the edge of the Gaean Reach, a capricious swirl of galactic gravitation has caught up ten thousand stars and sent them streaming off at a veer, with a curl and a flourish at the tip. This strand of stars is Mircea´s wisp". How is this for melody and rhythm?. Pure Tchaikovsky, I would say., complete with drums and trumpets and background violins.
Some local girls in "Araminta Station," book one of the chronicles are described in this manner:
"The Yip girls are known for their docility... and also for their absolute chastity unless they are paid an appropriate fee....".
A business visit goes like this in "Throy":
" Mr. Yoder will see you now. His category is 3b. No doubt you will recognize this and conduct yourselves with decorum....."
A tall, gaunt gentleman entered the room... spoke in a flat metallic voice: May I inquire your identities?
"I am Commander Glawen Clattuc and this is Commander Chilke of the Cadwal Constabulary... Our status is high."
"Cadwal? I have never heard of the place...
Sir, it is well known to educated persons...
From "The Eyes of the Overworld", a volume which deals with the adventures of the picaresque Cugel we read:
"Cugel pushed the heavy iron-bound door and entered the inn. He stood in a vestibule. To either side were diamond-pane casements, burnt lavender with age, where the setting sun scattered a thousand reflections. From the common room came the cheerful hum of voices, the clank of pottery and glass, the smell of ancient wood...
The landlord stood behind a counter.. his expression was as placid and calm as the flow of the river..
"I strongly desire a private chamber with a couch of good quality, a window overlooking the river, a heavy carpet to muffle the songs and slogans of the pot-room...
The landlord replied: "I fear you will be dissapointed... the single chamber of this description is already occupied by that man with the yellow beard sitting yonder... Lodermulch..
"Perhaps, on the plea of emergency, you might persuade him to vacate the chamber...
"I doubt he is capable of such abnegation... but, why not put the inquiry yourself?. I, frankly, do not wish to broach the subject...
Cugel, surveying Lodermulch's strongly marked features, his muscular arms and his disdainful manner ... was inclined to join the innkeeper in his assessment of Lodermulch's character. "It seems," he said, "that I must occupy the pallet."
In "Big Planet" Vance describes a group of travelers arriving at a city called Kirstendale, "where everybody is a millionaire..." The inhabitants walk around dressed in garments of remarkable complexity and elegance... The city had been settled by a group of some 30 families with their servants. Even the servants behaved with great dignity and sophistication. The city was "clean as new paper, bright with polished stone and glass, gay with flowers."
The travelers are invited to stay at the villa of Sir Walden Munchion, where they are treated and fed like kings. The day of their departure Sir Walden excuses himself from seeing them off since he will be occupied... They are taken to the Monoline station where the porter who brings their suitcases to the cabin is ... Sir Walden. The secret of the city is revealed. "For every hour of swanking around as an aristocrat, everybody puts in two working in the shops and homes and other tasks". Instead of one life they live two...
I hope that you will try Vance some time. You would encounter wonderful worlds, heroes of every description, truants, noble deeds, sorcerers, quirky characters, crisp dialogue like the best champagne brut.
Vance is already in his middle 80s. He likes to play jazz, is an amateur carpenter and a mining engineer. He lives in Oakland. Jerry Pourcelle says that "Jack Vance has perfected the trick of creating new worlds so deceptively real that after a while your own home seems imaginary...."
In Venezuela this is a very useful writer to have in your desk at all times ... and I do!
Gustavo Coronel is the founder and president of Agrupacion Pro Calidad de Vida (The Pro-Quality of Life Alliance), a Caracas-based organization devoted to fighting corruption and the promotion of civic education in Latin America, primarily Venezuela. A member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), following nationalization of Venezuela's oil industry, Coronel has worked in the oil industry for 28 years in the United States, Holland, Indonesia, Algiers and in Venezuela. He is a Distinguished alumnus of the University of Tulsa (USA) where he was a Trustee from 1987 to 1999. Coronel led the Hydrocarbons Division of the Inter-American Development Bank (IADB) in Washington DC for 5 years. The author of three books and many articles on Venezuela ("Curbing Corruption in Venezuela." Journal of Democracy, Vol. 7, No. 3, July, 1996, pp. 157-163), he is a fellow of Harvard University and a member of the Harvard faculty from 1981 to 1983. In 1998, he was presidential election campaign manager for Henrique Salas Romer and now lives in retirement on the Caribbean island of Margarita where he runs a leading Hotel-Resort. You may contact Gustavo Coronel at email gustavo@vheadline.com