The reasons for buying stocks or stock indices of Indonesia and Turkey are recognizable and similar to those that were seen years ago for other countries like Russia or China: depressed valuations, capital flight, and a pessimism that seems to leave little room for new disappointments. For a value investor, this combination is appealing, but the issue is that the discount may be reflecting a permanent decline in profitability, a lower ability to convert profits into distributable cash, or, often, both factors. Therefore, expecting the multiple to return to its historical average is equivalent to assuming that the factors that have reduced it have been resolved. Keep reading
The potential reclassification of the Southeast Asian country suggests hidden ownership and coordinated negotiations
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The reasons for buying stocks or stock indices of Indonesia and Turkey are recognizable and similar to those that were seen years ago for other countries like Russia or China: depressed valuations, capital flight, and a pessimism that seems to leave little room for new disappointments. For a value investor, this combination is appealing, but the issue is that the discount may be reflecting a permanent decline in profitability, a lower ability to convert profits into distributable cash, or, often, both factors. Therefore, expecting the multiple to return to its historical average is equivalent to assuming that the factors that have reduced it have been resolved. Keep reading
