Investors are now homing in on what Matthew Merritt, London-based global equity strategist for Salomon Smith Barney, calls emerging-market "champions." Far from the broad-brush approach of the early 1990s, investors are "focusing on specific companies that offer good performance against their global peers and trade at good discounts," he says.
Several of those companies figure at the top of BusinessWeek's list of the largest emerging-market companies by market capitalization. Leader China Mobile (Hong Kong) is one of the world's biggest mobile telecom companies, with 118 million subscribers at the end of 2002. Profits increased 17%, to $4.0 billion, last year, and the group is set to continue growing, in part through acquisitions of local operators in China. Then there's PetroChina, which catapulted from a lowly No. 83 on the list to a surprising No. 3 this year. Warren E. Buffett's recent decision to buy a chunk of the company represented a vindication of PetroChina's good corporate governance -- at least for China -- and steady earnings performance.
The Korean equities on the list, meanwhile, show how selective investors are getting. Seoul's Kospi index is up just 7% this year. But its star performer, Samsung Electronics Co. (No. 2), is up 14% and was the world's fastest-improving brand last year, according to Interbrand, an international brand strategy and design firm. Yet Korean banks have been hit by the reckless expansion of credit-card debt. Those concerns are behind the drop at Kookmin Bank, considered by many analysts to be Korea's best-run bank, which fell from No. 11 to No. 30 on the list.
Blue chips in other emerging Asian markets have also held up despite a rude buffeting by outside forces. Taiwan was one of the countries hit hardest by SARS. And it was a terrible year for Taiwanese chipmakers, hit by the global tech slump and challenged by rising competition in the higher-end foundry business. Thus, the world's biggest chip foundry, Taiwan Semiconductor Manufacturing Co., fell three notches, to No. 6. But prospects for a worldwide tech revival are good, and TSMC and other electronics manufacturers should benefit. Stock prices in Taipei are now moving up briskly.
Tech is not the only way to score. The oil-fired Russian economy is headed toward economic growth of nearly 7% this year. The big news in Russian energy was the merger announced on Apr. 22 between Yukos (No. 7) and Sibneft (No. 20), Russia's two fastest-growing oil producers. Newly created YukosSibneft Oil Co. will be the world's fourth-largest oil producer, with current output of 2.3 million barrels per day. Sibneft President Eugene Shvidler has one of the best records in Russian business for returning cash to shareholders. "That's my personal ideology -- that the company has to return all the cash to the shareholders," says Shvidler. Oil is also greasing the skids at Petrobras (No. 9), Brazil's huge, government-controlled oil concern, with $23.3 billion in 2002 sales. Like many other Brazilian stocks, Petrobras was rattled last year by political uncertainty preceding the election of President Luiz In?cio Lula da Silva, a fiery former labor unionist. But Lula has maintained Petrobras' professional management team, which produced first-quarter profits of $1.9 billion, 239% higher than the same quarter a year ago. "Petrobras has become one of the most profitable companies in the oil industry," says company President Jos? Eduardo Dutra.
Brazil isn't the only way investors are playing a Latin rebound. Mexican consumers have kept demand high for such services as broadband Internet connections, bolstering the fortunes of Tel?fonos de M?xico (Telmex), ranked No. 10. Improvement in the U.S. economy, which takes 90% of Mexico's exports, should provide a boost, benefiting No. 17 Wal-Mart de Mexico, now the country's leading retailer. More Mexican consumers want first-world service and products in their stores. That's just what first-world investors want to hear. By Geri Smith in Mexico City, with Moon Ihlwan in Seoul, Bruce Einhorn in New York, and Paul Starobin in Moscow