Chief Executive Officer Irene Rosenfeld is the linchpin of Kraft’s current management. Ranked the world’s #1 businesswoman by the Financial Times in 2011,  Rosenfeld has done much to lead Kraft Inc to a larger presence in emerging markets. 

The acquisition of British chocolate maker Cadbury in 2010 was one such example. Among other things, this is leading to a substantial effort by Kraft in India, where revenues have risen 40%.

(Berkshire Hathaway actually opposed the Cadbury acquisition, suggesting that even the Sage of Omaha has his blind spots.)

The most significant move by Rosenfeld to better position Kraft for operations abroad has been the splitting of the company into two units: a North American grocery unit and a global snack unit.  About this, Rosenfeld observed that, “We are talking about two companies with sizable scale in their respective markets.”  

“The North American grocery business is a $16bn business with a set of iconic brands, more than 80% of which have the number one market position in their respective categories. The global snacks business is a $32 billion behemoth, with the number one position in three of our four categories and a sizeable footprint in key markets, particularly in developing markets.”

Investors looking for a broad-based exposure to American consumer giants venturing abroad may be interested in the Consumer Staples Select Sector SPDR Fund (XLP, quote). XLP devotes 5.17% of its holdings to Kraft, with larger investments in global businesses like Proctor & Gamble (PG, quote) and Walmart (WMT, quote).

Alibaba Group Holding Ltd., run by billionaire Jack Ma, offered HK$13.50 a share for the 27 percent it doesn’t already own of Alibaba.com. The price is a premium of 60% over the 60-day average closing price of the company’s shares.

According to the Alibaba Group statement, the major factor driving the decision to privatize is so that the company can implement a shift in its business strategy that could “result in slower revenue growth and less earnings visibility in the short- to medium-term.” The company’s business was previously driven by a focus on rapidly recruiting subscribers who pay to sell products on the site, but the pace of adding subscribers has slowed down as Alibaba.com has struggled to add anti-fraud measures to the site.

Alibaba.com missed profit estimates in today’s earnings report for 4Q2011. Net income declined 6% year-over-year for $61 million for the quarter. Analyst Jiong Shao of Macquarie Group told Bloomberg Television that “The state of the business is deteriorating,” and that the company will lose more customers in 2012.

The privatization announcement caused Alibaba.com’s shares to jump 43% in Hong Kong today. Investors should be on the lookout for the privatization to affect the Guggenheim China Technology ETF (CQQQ, quote), which devotes 4.45% of its holdings to Alibaba.com, and possibly the Guggenheim China Small Cap Index ETF (HAO, quote), which stakes 1.21% of its holdings on the company.

Jung was one of several executives brought down by an investigation into whether employees violated U.S. anti-corruption laws by bribing Chinese officials. Avon also fired four executives suspected of paying bribes, including the general manager and finance chief of the China unit.

China represents only 2% of Avon’s $11 billion global sales, but has become emblematic of the company’s troubles.

Avon’s sales have fallen, and the company has faced stiff competition from larger cosmetics makers like Unilever (UL, quote) and Proctor & Gamble (PG, quote).

In last week’s report of annual results, 2011 profit was $855 million, down 20%, while net debt was up. The Samsung Economic Research Institute calls the company’s strategic adjustments “relatively passive,” but a recent EmergingMoney analysis has shown that Avon may still be a good bet in the stock market.   

According to a report from the African Development Bank, in 2060 there will be 1.1 billion Africans in the middle class. This will be over 40% of the populace. The International Monetary Fund projects growth rates of well over 5% for Africa in the future.  For the rest of the globe, a growth rate of 4% is expected.

To meet the demands, Nestle has invested $850 million in Africa over the past five years to develop an infrastructure. From expenditures in Africa and other emerging markets, Nestle hopes to have 45% of its sales emanating in emerging market nations by 2020 – a 50% increase from the present rate. Kraft and Samsung Electronics hope to enjoy similar growth.

Of course, this overnight success is a long time coming. Nestle introduced its Cremora coffee creamer in 1966.

Investors looking for a broad-based exposure to international consumer giants may be interested in the  Vanguard MSCI EAFE ETF (VEA, quote). Nestle is VEA’s top holding at 2.07%, while other holdings include Vodafone, GlaxoSmithKline, and Toyota.

The French Environment Ministry is asking the European Union to terminate use of the genetically modified corn known as MON810 in 2012 despite a ruling from France’s high administrative court lifting the ban in November 2011. 

The ban was originally put in place in February 2008 citing U.S. agricultural biotech company Monsanto’s MON810 — a genetically altered corn seed — for health and environmental risk.

Conseil d’Etat lifted the ban at the end of November 2011, but recent studies have confirmed environmental hazards related to the planting of MON810. 

These scientific studies are now the basis for the French environment ministry’s request that the European Commission suspend planting of the MON810 seeds.

MON810 corn was the only crop to have been granted permission for planting in the European Union, despite losing European and French court rulings. The seed patent for corn MON810 is owned by U.S.-based agro-biotech firm Monsanto, the leading global provider of agricultural products such as seeds, genomics, and agricultural productivity segments.

The US dollar will constitute 23.3% of the index. Currency weights will generally be apportioned by the country’s percentage share of global GDP with a minimum weight of 0.25%, meaning that the BRICs currencies will account for around 17.7% of the index.

The index is not tradable, but will be followed by fund products replicating its performance.

The general idea is that with the vast amount of quantitative easing over the last three years, both explicit and implicit, investors need a vehicle to remove the external risk of currency losses from their portfolio. According to FTSE:

The aim of WPU is to construct a basket of currencies and commodities that preserves the long-term real wealth of investors by reducing the external risk of loss arising from variations in the relative valuation of currencies and the internal risk of loss arising as a consequence of a general reduction in purchasing power. (full document and methodology)

The index will be adjusted regularly, keeping each currency weight according to percentage of world GDP. As the developing markets gain a higher share of the world’s economy, their index weight will grow and investors will be gradually moved into more exposure.

The most obvious problem is the one prevalent in most indices: that constituents are selected based on an arbitrary factor unrelated to performance or projected performance.

In fact, we can be fairly certain over the long-term that the currencies constituting the vast majority of the index will depreciate against those in the emerging world. A need for hedging across the developed currencies may be necessary for investors with large stakes in these countries, but this is unrelated to the need for long-term debasement protection and available through existing funds like a combination of the CurrencyShares Euro Trust (FXE, quote), the CurrencyShares Yen Trust (FXY, quote) and the PowerShares DB USD Fund (UUP, quote).

Short-term traders have a myriad of individual currency funds with which to hedge or speculate including the WisdomTree Chinese Yuan Fund (CYB) and the WisdomTree Brazilian Real Fund (BZF).

The long-term investor will want exposure to emerging currencies through bond and equity funds. Though currency funds are also available, the exposure to bond and equity funds will allow for both asset appreciation, income, and exposure to purchasing power protection from a debasement of developed market currencies. In January, we highlighted the WisdomTree Emerging Market Local Debt (ELD) as a good opportunity within the bond space.

While the proliferation of indexes generally gives investors a way to fine-tune their investment strategy, investors need to understand the construction and relevance behind their indexed investments. While useful for hedging, actively and directly selecting investments for expected return rather than an arbitrary characteristic is often the better approach.

As followers of my approach to intermarket analysis are aware, I focus on relative performance to get a sense of where the crowd is positioning most aggressively at any moment in time.

I prefer this approach rather than relying on investor sentiment surveys because it shows where money is going and not so much what people are saying: actions speak louder than words.

One relationship in particular I like to focus in on is the relative performance of small to large-cap stocks. For example, when the small-cap Russell 2000 (IWM, quote) outperforms (up more/down less) the large-cap S&P 500 (SPY, quote), it means investors are comfortable with taking risk.

After all, small-cap stocks tend to have higher beta and higher market sensitivity and are less liquid, which means traders will have to accept positions for longer periods of time — likely only when there is a growing sense that the economy and world financial system are improving.

Take a look at the price ratio of the SPDR S&P Emerging Markets Small-Cap ETF (EWX, quote) relative to the iShares MSCI Emerging Markets ETF (EEM, quote). As a reminder, a rising price ratio means the numerator/EWX is outperforming (up more/down less) the denominator/EEM.

We can clearly see that the ratio peaked out in late 2010 and weakened substantially throughout 2011. However, sometime around the middle of December a bottom looks to have occurred, with a significant period of outperformance occurring in a powerful uptrend of leadership.

If U.S. small-cap stocks are less liquid than their larger counterparts, this is even more true for emerging small-cap shares. For these relatively illiquid asset class to come back so sharply, some serious “risk on” positioning must be occurring overseas.

Interestingly enough, the move can not be attributed to any single stocks. The top three holdings in EWX are Kulim (Malaysia) BHD, Lewis Group LTD and Thanachart Capital, but combined they make up only about 2.25% of the fund.

The bottom line is that the above ratio continues to confirm the very real idea that 2012 can be a year of reflation similar to 2003 and 2009, as I’ve been stressing in my writings. Risk appetite has come back in a stunning way.

Go EEM, go.

by Michael A. Gayed CFA for Emerging Money

The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized advice. The opinions herein are not personalized recommendations to buy, sell or hold securities.

The Index consists of 20 agriculture investments, with the major holdings being wheat (JJG, quote), corn (CORN, quote) and cotton (BAL, quote). These components are pretty stable, and their prices are currently within 1% of where they were a year ago. 

Not so RJA. It’s down over 21% for the last year, though it is up slightly since the beginning of 2012. Contrast this with the major exchange traded fund for agriculture, PowerShares Agriculture (DBA, quote), which is down only 16% over the last year.

When interviewed about the fund by Bloomberg Television in Singapore, Rogers said that a correction in commodities was to be expected.  Hopefully that is now over, and the RJA will be on the way back up in 2012.

“Despite the fact that we believe that the company is taking the right steps in order to recover profitability, reach positive cash flow generation and decrease leverage, we would rather focus on companies with a more stable operating environment at this point,” says Itaú in a note after Gafisa’s 4Q11 results release.

At current prices, experts see the stock trading at 7.8 times P/E 12, and 6.1 times P/E 13, compared with the sector average of 6.6x and 6.7x, respectively. 

According to Itaú, GFA’s weak preliminary results are in line with what they expected. “As already expected, results were tarnished by the cancellations of clients and write-offs of projects at the Tenda level,” they comment.

Itaú believes these numbers are incorporated into the stock, which has been underperforming lately.

All in all, analysts are keeping their ‘market-perform’ recommendation on GFA with a fair value of BRL 9.3. 

Investors interested in a small exposure to Gafisa may want to examine the Market Vectors Brazil Small-Cap ETF (BRF, quote), which devotes 2.42% of its holdings to the company.

According to the somewhat poetic DBS analysts, consumer companies offer “better resilience during the harsh times as well as fruitful returns whenever skies clear again.”

More practically, the Chinese government favors rebalancing economic growth toward consumption. To that end, it is pursuing policies that increase the minimum wage, limit individual medical costs, accelerate urbanization with new transportation systems, and build millions of units of affordable housing.

The big trend lies in discretionaries. DBS Group sees the RMB continuing to appreciate, increasing the purchasing power of mainland consumers. High-end merchandise retailers will continue to spread into China’s provincial cities, and sustainable inflation will prompt demand for valuable assets, including gold and luxury watches. The home appliance industry will also benefit from energy savings subsidies introduced by the Chinese Government in 2011.

The DBS Group’s top picks include China Foods, China Resources, and Golden Eagle Retail Group. These companies are not available in the United States, but they can be found in the Global X China Consumer ETF (CHIQ, quote), which is currently trading a little above its 20-day simple moving average of $14.25.