Investing in the Globe's Emerging Bright Spots
Rachel Koning Beals
Recent declines in emerging markets have spooked investors, but the long-term outlook remains favorable
Although emerging markets have taken a dive lately, the long-term outlook for these fast-growing countries remains favorable for investors, especially as growth in much of the developed world stalls. Investors should consider folding high-growth global exposure into a balanced portfolio.
Declining prices of emerging market stocks have clearly spooked some investors. In one example,
"Decelerating growth, high inflation, and the implementation of tightening policies in some emerging markets also resulted in investors' nervousness," said Mark Mobius, executive chairman of Templeton Emerging Markets, part of Franklin Templeton Investments, in an August research note.
Last year, U.S. mutual-fund investors pumped nearly
As some investors rush the exits, those with a longer horizon may find the category's cheaper point of entry attractive. The MSCI Emerging Markets Index is trading at around 10 times 2012 analyst estimates, compared with a historical average of 11.5.
But price isn't everything. First, there is a positive fundamental backdrop to investing in emerging markets. In
Middle class emerges.Clearly, there are bullish reasons to consider investing in emerging markets as a sector. Or, in the case of the
"Real estate provides a dynamic way to participate in structural long-term growth," says
Make no mistake that the health of emerging economies is intertwined with the economic strength of the developed nations that snatch up their products. Areas that make cars and technology, like South Korea, Taiwan and China, in particular, would be hurt if
Economic growth in the
"Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up," OECD Chief Economist Pier Carlo Padoan said during a presentation of the OECD's Interim Economic Assessment.
"Economic giants like China and India, with their increasing demand for commodities and natural resources, play a pivotal role for growth in the region. In
"We see inflation, especially rising food prices, and higher interest rates as a few key risks to growth in
But inflation, too, should be held back by slower global growth, says Wells. Important for investors is the fact that emerging-market central banks have some wiggle room with interest rates.
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