Our research shows that the emerging economies’ share of Fortune Global 500 companies will probably jump to more than 45 percent by 2025, up from just 5 percent in 2000. That’s because while three-quarters of the world’s 8,000 companies with annual revenue of $1 billion or more are today based in developed economies, we forecast that an additional 7,000 could reach that size in little more than a decade—and 70 percent of them will most likely come from emerging markets. To put this dramatic shift in the balance of global corporate power in perspective, remember that many of the world’s largest companies have maintained their current status for generations: more than 40 percent of the 150 Western European companies in last year’s Fortune Global 500 had been founded before 1900. … The rebalancing of the global business landscape will probably be even faster and more dramatic than the shift of economic growth to emerging regions. Large companies matter, and not just for their ability to create jobs and generate higher incomes; they are also forces for increased productivity, innovation, standard setting, and the dissemination of skills and technology. Their geographic shift will have profound implications for the nature of competition, including not only the race for resources and talent but also, more broadly, the emerging markets’ efforts to reach the next level of economic development and prosperity.
Activities out in the sticks may add more to GDP than was thought … India’s villages and towns, far from the gaze of foreigners and the urban elite, have been on a tear. Over the past decade new roads have been built. Almost everybody these days has a mobile phone. Electricity has become more common, as have computerised land records. Fewer people have to spend time collecting firewood, using bottled gas instead. New houses built with walls and floors of brick or cement are more durable than wooden huts, and need less maintenance. … It means people can turn their energy to starting businesses and escaping subsistence farming. Poultry production is booming, as it has become easier to get chickens to market. Villagers eat more processed food—India’s artery-clogging pudding, gulab jamun, now comes in packets, made in small factories in nearby towns. Better communications are vital. … A bigger economy is good news, but it raises two questions. First, can the informal economy be insulated from the problems affecting the rest of India? … The second question is how swiftly India can bring its black economy into the daylight.
China may soon be the world’s biggest producer of wine. In his father’s hometown, a prominent architect — and unlikely winemaker — sees a new Napa. ... When Ma Qingyun visits Yushan, a rural town an hour outside of Xi’an, in China’s Shaanxi province, he travels in a chauffeured black Mercedes-Benz. His car speeds eastward along the newly paved roads ... “How about we chug the first glass?” Frank Fu, a Shanghai-based venture capitalist, suggests, holding up his full wineglass and looking around. Laughs ripple among Ma’s guests, unsure if the suggestion is serious. Ma nods and laughs. “Sure!” Fu clinks glasses with his neighbors before tilting his head back and downing the wine. A few of the other guests join in. ... Baijiu is still the most popular alcohol in China (and accounts for about 38 percent of worldwide alcohol consumption), but the past few decades have seen a rapid expansion of the country’s wine market. China is now the fifth-largest wine-producing nation in the world, and it nearly tripled its consumption of red wine between 2008 and 2013, becoming the world’s largest consumer of the beverage. But old drinking habits linger, and Ma has acquired a benevolent patience with potential buyers who swig his painstakingly crafted pinots as if they were baijiu.
In just 20 years, Cambodia has transformed from a post-conflict, aid-dependent, least-developed country to a dynamic economy with the fastest pace of GDP growth in East Asia. ... According to a report from the Cambodian Development Resource Institute, between 1995 and 2012 economic growth averaged 7.9% and per capita income increased from $248 to $878. GDP growth for this year — on the back of strong performance in garment manufacturing, tourism, construction and agriculture — is expected to reach 7.3%. This puts Cambodia ahead of its neighbors in Southeast Asia. The latest ANZ Asia Pacific Economics report describes Cambodia as “the only country that has been able to grow its exports at a faster pace in the post-crisis period [2007-2008].” ... Economic prosperity is showing up in socio-economic indicators such as the poverty rate, which has been halved, improvements in primary school enrollment, and reduced infant mortality. Corruption, clientelism, social inequality and poor infrastructure remain, but the overall picture is brighter than it has been for four decades. ... To appreciate the magnitude of Cambodia’s turn-around, it’s important to go back to “year zero,” to 1975, when Cambodia was ruled by Maoist fanatics known as the Khmer Rouge. By the time the Vietnamese army overthrew the Khmer Rouge in January 1979, between 1.5 and two million people — a quarter of the population at the time — had perished.
The recent slowdown in China’s growth has caused concern about its long-term growth prospects. Evidence suggests that, before 2008, China’s growth miracle was driven primarily by productivity improvement following economic policy reforms. Since 2008, however, growth has become more dependent on investment and overall growth has slowed. If the recent reform plans can successfully address the country’s structural imbalances, China could maintain a solid growth rate that might help smooth its transition to high-income status. ... Theory suggests that three factors contribute to economic growth: capital accumulation, labor force expansion, and productivity improvement. ... China’s growth miracle since the early 1980s has significantly raised the standards of living in China. It has also made China an increasingly important contributor to world economic growth and a large and growing market for U.S. exports. The rapid growth was driven primarily by productivity gains and capital investment. The recent growth slowdown has raised the concern that China’s growth miracle could be ending.
The world is about to experience an unprecedented consumption boom, which presents both challenges and opportunities for investors everywhere. Animal protein consumption, energy, air travel, health care, and education are some of the most relevant sectors involved as the upcoming changes in population and income collide. ... The world in general—and India in particular— is in the midst of a fascinating transition right now. Taking a step back from our day-to-day focus to view the bigger picture can offer a different perspective on the dynamics of various countries in a volatile and uncertain world. Envision a map that is drawn to represent how economists view the world. Imagine a map on which the area occupied by a country as a percentage of total area is equivalent to its percentage of global GDP. Compared with traditional maps, in which country sizes are based on land area, the United States, Europe, and definitely Japan would appear bloated. Other regions would look smaller—for example, Africa or India. Africa especially is quite difficult to see on the economists’ map. ... Now, imagine another map on which land area is proportionate to the country’s percentage of the global population. If the United States is viewed this way, it will be much smaller than on the economists’ map. In the population map, Africa would become relevant and uncertainties about the importance of India and China would disappear. Focusing on the differences in these maps may permit us to realize our biases in viewing the world.
Though China has been the global economic star of the last low-growth decade, it remains a totalitarian dictatorship, with its economy shrouded in state secrecy. What we’re encountering in this crisis is the spectacle of a closed society colliding with the forces of complex, free-market capitalism. If we look beyond China, we can find a long history of these collisions, dating back hundreds of years, as both closed societies and capitalism evolved and became more complex. And the history has a clear but unsettling lesson to offer: When such a collision happens, it’s a moment to genuinely worry. ... Since the dawn of capitalism, closed societies with repressive governments have — much like China — been capable of remarkable growth and innovation. Sixteenth-century Spain was a great imperial power, with a massive navy and extensive industry such as shipbuilding and mining. One could say the same thing about Louis XIV’s France during the 17th century, which also had vast wealth, burgeoning industry and a sprawling empire. ... But both countries were also secretive, absolute monarchies, and they found themselves thrust into competition with the freer countries Holland and Great Britain. Holland, in particular, with a government that didn’t try to control information, became the information center of Europe — the place traders went to find out vital information which they then used as the basis of their projects and investments. The large empires, on the other hand, had economies so centrally planned that the monarch himself would often make detailed economic decisions. As these secretive monarchies tried to prop up their economies, they ended up in unsustainable positions that invariably led to bankruptcy, collapse and conflict. ... China is a new case, for it has mixed capitalism and totalitarianism in a unique way. ... The government may not be able to control the stock market, but it does successfully keep a veil over state finances. This is what closed, authoritarian governments have done since the 16th century. ... what we are seeing in this current financial crisis is likely to be only the beginning of the political and societal crisis brought about by a dictatorship’s efforts to simulate the performance of a capitalist economy — but one that only grows. ... There is no historical example of a closed imperial economy facing large capital-driven, open states and sustainably competing over a long term.
The English colonial legacy bequeathed a serious tea habit to Kenya. A super-sweet brew boiled up in milk rather than water, tea is the drink of choice at home and in government offices. As the world’s leading black tea exporter, Kenya brings in about $1bn a year from its production, which totalled 450,000 tonnes last year, nearly 10 times as much as coffee production. But the up-and-coming consumer is plumping for coffee, across the city and into its fringes. ... Suleiman says he goes for coffee because “big men” drink it. Mahiti concurs: “We’ve always had tea, but coffee is something that wasn’t there before: it’s like a sign of success when you drink coffee.” ... “If you want to be identified as someone who’s on an upward track, where better to do that than in a public space where you’re spending only a buck and a half to have a cup of coffee and say ‘I’ve made it, I’ve arrived,’” says Ashley, who explains the company deliberately never hurries customers from tables, even if they nurse their cup for hours to eke out time and free WiFi. “It’s a very inexpensive way to demonstrate your rise up in society.”
Because rubber is so common, so unobtrusive, so dull, it may not seem worth a second glance. This would be a mistake. Rubber has played a largely hidden role in global political and environmental history for more than 150 years. You say you want an industrial revolution? If so, you need three raw materials: iron, to make steel for machinery; fossil fuels, to power that machinery; and rubber, to connect and protect all the moving parts. Try running an automobile without a fan belt or a radiator hose; very bad things will happen within a minute. Want to send coolant around an engine using a rigid metal tube instead of a flexible rubber hose? Good luck keeping it from vibrating to pieces. Having enough steel and coal to make and drive industrial machinery means nothing if the engines fry because you can’t cool them. ... To the extent that most people think about rubber at all, they likely picture a product made from synthetic chemicals. In fact, more than 40 percent of the world’s rubber comes from trees, almost all of them H. brasiliensis. Compared with natural rubber, synthetic rubber is usually cheaper to produce but is weaker, less flexible, and less able to withstand vibration. For things that absolutely cannot fail, from condoms to surgeon’s gloves to airplane tires, natural rubber has long been the top choice. ... Iron can be found around the globe; so can fossil fuels. But rubber today is grown almost exclusively in Southeast Asia, because the region has a unique combination of suitable climate and infrastructure. Despite all the ups and downs in the global economy, the demand for tires continues to grow, which has created something akin to a gold rush in Southeast Asia. For millions of people in this poor part of the world, the rubber boom has helped bring prosperity
It has always baffled me how the financial industry in general, and financial newspapers in particular, appear to be hell-bent on forecasting this or that in early January. I actually find it outright laughable when someone projects the FTSE100 to be at 7,000 by Christmas time, or for the U.S. 10-year T-bond to hit 2.5% by midsummer. How on earth do they know? The generally poor predictive record proves they don’t, I suppose. On the other hand, that is perhaps what the majority of investors want. If you belong to that majority, there is no need to read any further. You will be wasting your time. ... If you see any forecasts from me (and you do), you will note that (i) they are very long term in nature, and (ii) they are based on structural trends, not tactical (cyclical) trends. Why is that? Partly because I think short-term forecasting is a sucker’s game, and partly because I know for certain that the structural trends that we have identified will happen. It is only a question of when, but more about that later. ... You can hardly open a newspaper these days without some commentator looking to buy fame by attempting to predict the next crisis but, as I just pointed out, the last one isn’t over yet. Therefore a far more relevant question is: What is likely to be the next leg of the GFC? ... I think three topics are particularly likely to steal the limelight in 2016:
- All sanctions against Russia to be lifted and trade relationships to be normalised.
- The EM crisis widens as commodity prices continue to fall.
- The credit market is spoiling the party again.
Is it any wonder investors are questioning why they allocate to emerging markets in the first place? Even going beyond the woes of emerging, we are starting to hear some investors asking whether holding non-U.S. stocks is at all necessary. As market historians we can say that the timing of such sentiments tends to be bad – no one seems to ever decide to give up on an asset class after it has just had good performance, and the last burst of “why bother with non-U.S. stocks” occurred just before the top for the S&P 500 in 2000. But just complaining that investors got it wrong last time they voiced these sentiments does not qualify as thoughtful analysis. ... while emerging markets “deserved” some of their bad luck over the last several years and the outperformance of the U.S. has made some sense, we do not believe that emerging is a value trap, nor do we believe that the U.S. has proved itself particularly extraordinary. ... In total, we can surmise that emerging currencies are a “risk asset” of sorts and that they have delivered a return above U.S. cash over time and should probably continue to do so given the capital needs and vulnerabilities of emerging economies. ... even if the U.S. has somehow managed to unlock the secret to permanently high profits and the economy remains solid, it seems unlikely that the secret will remain an entirely U.S. phenomenon. If we imagine a world in which U.S. profitability is able to remain well above historical levels, we would expect non-U.S. companies to begin to copy their American counterparts, similar to the way profitability converged from the 1970s to the early 2000s. ... we have seen an impressive expansion of American profitability that has not been mirrored in the rest of the world, and U.S. stocks have duly outperformed. This has, not surprisingly, led investors to try to convince themselves of the inherent superiority of U.S. stocks to justify continuing to hold them. We cannot completely reject the possibility that those arguments are correct, but the evidence seems pretty thin.
One thing we are exceptionally good at in the West is to blame China for pretty much anything that goes haywire. If you believe various commentators, it is all China’s fault that global equity markets have caught a serious cold more recently and, before that, China was blamed for the extraordinary weakness in industrial commodity prices. They have weakened - or so the argument goes - because China’s growth is not quite what it used to be, and commodity producing countries are over-producing as a result. ... Whilst entirely correct that China’s GDP growth rate has indeed slowed substantially, perhaps someone should consider whether China is as much the consequence as the cause; whether China is in fact a victim rather than a villain? Let me explain. ... I see no reason why the present combination of low oil prices and attractive foreign exchange rates shouldn’t invigorate economic growth across emerging markets ... EM equities could quite plausibly end up being the bargain of the year, although I am concerned about corporate leverage in many EM countries. One would therefore have to step carefully ... Finally a general observation: This is not a repeat of 2008, as many have suggested. An EM crisis is not likely to do nearly as much damage to the financial system in our part of the world, as the GFC did. Why? Because the banking system in DM countries have only limited exposure to corporates in EM countries.
- Also: Foreign Policy - China’s Coming Ideological Wars < 5min
- Also: Quartz - The most egregious examples from the Chinese government’s long, sordid history of data-doctoring 5-15min
- Also: Financial Times - M&A: China’s world of debt < 5min
- Also: Wall Street Journal - Chinese Developers Build in America, but Look for Buyers at Home < 5min
- Also: Financial Times - China’s great game: Road to a new empire < 5min
Saudi Star’s proprietor, a Saudi-Ethiopian tycoon named Mohammed al-Amoudi, has spent more than $200m turning a swath of bush into a farm the size of 20,000 soccer pitches. That puts the sheikh, as he is known, in the vanguard of the global land rush. ... As the populations of better-off nations move to cities in ever greater numbers, the gap between the amount they grow and the amount they eat widens. Agricultural trade has long filled this gap. But a price shock in 2007, when staple crop prices doubled in a few months, demonstrated that global markets for food can break down. Then the financial crisis created demand for investments that were not linked to volatile equities and bonds. Governments, multinational companies and institutional funds started to pour millions, then billions, into other countries’ land. ... From Southeast Asia to Latin America and sub-Saharan Africa, investors are seeking to profit not simply by trading the fruits of the earth — the rice and the coffee, the oil and the gold — but by controlling the land itself. ... This is a nation of smallholders: 85 per cent of employment is in agriculture and 95 per cent of all agricultural produce comes from small farms, typically the size of a couple of football pitches. ... Of that, 80 per cent is consumed by the households that produce it; only 20 per cent is sold. These farmers rely on their hands, some rudimentary tools and the fickle rains.
He bounces from smart locks, to smart lights, to a smart shower, to smart shoe insoles. It almost backfires when a Samsung representative demonstrating a smart refrigerator reaches out and flips his badge back over, asking, “What are you, press?” But his name doesn’t mean anything to her, and Pichai just casts an amused sideways glance and dives in with questions. “So, what can I ask the fridge?” he wants to know. Various versions of this same scene play out again and again. ... With $74.5 billion in annual revenue last year, Google is by far the largest (and only profitable) business under Alphabet. Indeed, Google has seven different products that more than a billion people use: Search, Gmail, YouTube, Android, Chrome, Maps, and its app and media vending machine, the Google Play Store. ... Google is sprinting to attract its “next billion” users. For the most part, these are people in the developing world; people who will go online, for the very first time, using one of Google’s Android-powered handsets. Which puts Google in the position of being seen as both a corporate NSA and modern East India Company. ... Android was, very literally, made for this moment. Its entire point is to be customized, reconfigured, and personalized for a world full of people across a range of sizes, shapes, configurations, and price points. Sure, signs for the $550 Nexus abound, but you can also score a cheap Android phone in Delhi, like a Lava Atom X, for less than $40 — and that’s without a contract. It will, Pichai thinks, change the status quo not just in India, but the entire world.
You might think twice about boarding a bus named "If Tomorrow Never Comes," with the phrase spray-painted in green above the windshield. I don't, not when the alternative is loitering along the smog-shrouded shoulder of Commonwealth Avenue—the 18-lane highway looping through Metro Manila colloquially known as the "Avenue of Death." And not when the ride in question is actually a jeepney, the garishly decorated offspring of U.S. Army jeeps abandoned in the Philippines following World War II. You might call it a death trap, but for millions of Filipinos it's just part of the daily commute. ... Jeepneys have neither emissions standards nor seatbelts nor retirement ages—the eldest have been running since the 1970s. They are the most dangerous and decrepit two percent of traffic, and they generate 80 percent of vehicular pollution. ... Nearly half of the capital's residents take one of its 45,000 jeepneys to work each day, more than double the number riding the city's buses and trains. Yet it's virtually impossible to cross the megacity riding just one; a typical commute involves some combination of the three. ... But today, Metro Manila has a booming economy and a surging population—the supercity has added 6 million residents since 2000, for a total of more than 24 million. At the same time, middle-class Filipinos are fleeing jeepneys for a quiet, air-conditioned drive in their own vehicles. Cars presently account for less than a third of all passengers on Manila's roads, but comprise nearly three-quarters of traffic. New car sales have nearly doubled in just the last three years. ... Jeepneys traditionally operate on a franchise system, with owners applying to the DOTC for the right to run on a particular route. The problem, she explains, is that the government never bothered to create a coherent network—it just handed out franchises to anyone who asked.
Congo is one of the last frontiers in a global scramble for the world’s best-tasting coffee. The rise in demand for specialty coffee, which accounts for one of every two cups sold in the U.S., has encouraged exporters, roasters and retailers to go places where the potential is huge—and so are the risks. ... The many challenges of doing business in Congo include death threats, kidnapping and extortion. Government officials often concoct new taxes on the spot or forge documents to demand more money than what is owed. Last year, at least 175 foreigners and Congolese, many working for aid organizations, were abducted and held for ransom, according to Human Rights Watch. ... Most of the kidnappings happened in areas near where specialty coffee is grown, though no Western coffee prospectors have been abducted. ... Specialty coffee is a fast-growing segment of the approximately $175 billion-a-year world-wide coffee market. Specialty coffee is made from the highest-quality arabica beans, sells at a premium and has gone from the fringe to mainstream. In the U.S., 31% of adults drink specialty coffee every day, up from 16% in 2006, the National Coffee Association trade group estimates. ... Congo’s best beans regularly get at least an 85 and fetch a wholesale price of about $3 a pound, about double the price on the ICE Futures U.S. exchange in New York.
At home, before he gave the present to his wife, Muruganantham took out one of the pads and tore it open. As a kid, he had always been driven by an extraordinary curiosity to find out how things worked; he would compulsively dismantle any new thing he could lay his hands on — toys, bicycles, radios. Muruganantham expected to see something interesting inside the pad, especially because of how furtively the shopkeeper had handed him the pack, but the innards seemed to be nothing but compressed cotton. He wondered why 10 grams of cotton — costing barely a 10th of a rupee — was being sold for a price that was beyond the reach of 90 percent of Indian women. ... economic constraints have driven India’s government and industries to create cheaper versions of many Western products and technologies. India’s pharmaceutical companies have for many years been a major supplier of cheap generic drugs domestically as well as in other developing countries. In 2014, when the Indian Space Research Organization’s Mangalyaan spacecraft entered into orbit around Mars, a few days after a NASA probe did the same, the most-talked-about difference between the two missions was that Mangalyaan had cost about a 10th of what NASA had spent.
For every flight departing Dubai, as cabin crew head to their airplanes, the last room they traverse is a hall with mirrors on one side and windows to the tarmac on the other. The space allows workers to inspect themselves for perfection against a backdrop of government-owned taxiways thick with Emirates jets. That’s the airline, in one image: glamour and ambition in a framework of absolute control. ... Out in the desert, a half-hour drive from the coast’s skyscrapers and malls, the government is building a $32 billion, five-runway megahub precisely to Emirates’ specifications. Its ambitions are consonant with its name: Dubai World Central. The project will have a capacity of 220 million passengers per year, four times the number that New York’s John F. Kennedy International Airport serves today. ... the airline is at risk if those emerging markets don’t, in fact, emerge. Emirates in May reported its first-ever annual revenue decline and is cutting some of its plans for growth amid slackening demand from sub-Saharan Africa, Turkey, and Brazil. The slump has industry analysts wondering how Emirates will fill the staggering number of planes it has on order. ... From a fuel and flight-time perspective, the Persian Gulf is the most efficient place on the planet to connect Europe with Southeast Asia and Australia, and the U.S. with India. Strikes and protests aren't an issue—unions are banned, and rights to free speech and assembly are severely limited.
As you may recall from previous years, the January letter is always about the mine field laid out in front of us. What could cause 2017 to be a year to remember? What could possibly go horribly wrong? At this point in time, I see many potential problems. I have some concerns about the US. I see dark clouds gathering over Europe, and I see very slippery conditions in many emerging markets (‘EM’). In other words, lots of markets around the world appear to be accident prone but for very different reasons ... The secret to being a good investor is to focus on risk management and to be well prepared for bad news. ... Stagnating economic growth and low – or even negative – real wage growth has created a deep level of dissatisfaction that the electorate chose to use politically ... EM non-financial corporates have continued to accumulate debt as if there is no tomorrow ... USD 890 billion of EM bonds and syndicated loans (an all-time high) are coming due in 2017 with almost 30% of that denominated in US dollars ... I usually focus on the negative aspects when investing; hence my writing also has a negative bias. That is not the same as saying that I am always bearish, and I am most definitely not particularly bearish going into 2017.
Investments into a vast network of harbours across the globe have made Chinese port operators the world leaders. Its shipping companies carry more cargo than those of any other nation — five of the top 10 container ports in the world are in mainland China with another in Hong Kong. Its coastguard has the globe’s largest maritime law enforcement fleet, its navy is the world’s fastest growing among major powers and its fishing armada numbers some 200,000 seagoing vessels. ... The emergence of China as a maritime superpower is set to challenge a US command of the seas that has underwritten a crucial element of Pax Americana, the relative period of peace enjoyed in the west since the second world war. ... China understands maritime influence in the same way as Alfred Thayer Mahan, the 19th century American strategist. “Control of the sea,” Mr Mahan wrote, “by maritime commerce and naval supremacy, means predominant influence in the world; because, however great the wealth of the land, nothing facilitates the necessary exchanges as does the sea.” ... The five big Chinese carriers together controlled 18 per cent of all container shipping handled by the world’s top 20 companies in 2015 ... The total size of these investments is difficult to calculate because of sketchy disclosure. But since 2010, Chinese and Hong Kong companies have completed or announced deals involving at least 40 port projects worth a total of about $45.6bn
In the industrialized world, the power grid is so reliable that we take it for granted. But in India, where blackouts are a sad fact of daily life, being connected to the grid is no guarantee of reliable electricity. In a 2015 study of villages in six Indian states [PDF], for example, the vast majority reported having fewer than 4 hours of electricity per day; nearly half of the households that reported having a grid connection nevertheless had effectively no electricity. Chief among the reasons they cited were poor reliability, quality, and affordability. In many parts of the country, even middle-income households still find themselves held hostage to frequent power cuts that can last anywhere from a few hours a day to most of the day. Those who can afford to often install diesel generators, an expensive and polluting option. ... Then, too, roughly a quarter of a billion Indians, or one-fifth of the population, live without access to any electricity at all ... The Indian government has taken a traditional approach to electrification, which focuses on building up generation, transmission, and distribution. But there’s a better way that’s more affordable, more efficient, and much faster and easier to deploy.
Long-time GMO clients have become accustomed to a certain kind of behavior from our asset allocation portfolios. If they are reading stories about how well an asset class has been doing, chances are pretty good that their next account statement will show that we are a seller of that asset (assuming we owned some in the first place). If, on the other hand, headlines are about how horribly things are going for an asset class, our clients have come to expect to see us buying in the coming quarters. But recently we made a move across a number of our asset allocation portfolios that goes counter to that general pattern. After a strong first half of 2017 for emerging equities that saw them rise over 18%, we actually bought more emerging in early July. It seems like a non-intuitive move for us to make, but we believe it is the correct one despite the fact that the prospective returns to emerging equities have dropped a bit since the beginning of the year. Even though the absolute expected return for emerging market value stocks has decreased, we believe the margin of superiority of emerging value over other assets has actually increased. As its superiority is higher and emerging-specific risk is relatively benign, our willingness to bear its risk has increased at the margin, which created the opportunity for us to increase our allocation.