Emerging Markets Boom Far From Over

After posting stellar gains in 2009, emerging markets have lost ground this year

. Concerns over European sovereign risks and a China slowdown saw financial markets lower expectations for global economic growth.

The MSCI Emerging Markets Index fell almost 20 per cent in May in US-dollar terms at the height of the European debt crisis, MSCI data shows. A partial recovery has seen the index down 2.5 per cent in the past three months. The one-year return is 21 per cent.

The question for investors is whether weakness in emerging markets is a long-term buying opportunity and if now is a good time to increase portfolio weighting in them using iShares exchange traded funds (ETFs).

Certainly, fundamentals for Asian economies remain robust, according to the International Monetary Fund's July 2010 World Economic Outlook update. The IMF revised upwards its economic growth forecasts for Asia from about 7 per cent in April to 7.5 per cent. It expects growth of 6.75 per cent in 2011.

"Asia's strong recovery from the global financial crisis continued in the first-half of 2010, despite renewed tension in global financial markets," the IMF said. "First-quarter GDP (was) generally stronger than anticipated at the time of the April 2010 World Economic Outlook indicators suggest that economic activity remained brisk during the second quarter."

The pace of growth differs across emerging markets. The IMF projects 2010 economic growth of 10.5 per cent in China and 9.4 per cent in India. Brazil is forecast to grow 7.1 per cent and Russia 4.3 per cent. In comparison, the IMF expects 2.6 per cent growth in advanced economies; the euro area is expected to grow 1 per cent and the United States 2.6 per cent.

Key investment themes

The broad theme of strong economic growth in emerging economies and muted growth in developed nations remains intact. That is not to downplay risks for emerging markets if the global economy grows slower than expected. Emerging-market exporters will struggle if the European debt crisis is not contained, or the US experiences a double-dip recession. Also, more volatile assets, such as emerging-market shares, typically fall more when investors risk appetite wanes.

But investors who can look through short-term volatility may take advantage of a bullish medium-term outlook for Asian markets.

The IMF's Finance and Development June 2010 newsletter says: "Based on expected trends, within five years Asias economy (including Australia and New Zealand) will be about 50 per cent larger than it is today (in purchasing-power-parity terms), account for more than a third of global output, and be comparable in size to the economies of the US and Europe. By 2030, Asian gross domestic product will exceed that of the Group of Seven major industrial economies."

Investors seeking more emerging-market exposure should take a cautious approach, in conjunction with their financial adviser. Higher volatility in emerging markets reinforces the need for a long-term investment strategy.

by: Chelsi Woolz

POST COMMENT

Stop Losing Patients! Use Dental Newsletter Marketing Freelance Marketplace: Wonderful Place To Get Outsourcing Resources Diet Scams Fat Burning Furnace They Laughed Because I Use Dental Newsletters In My Marketing Send Bulk Email For Marketing 5 Ways to Maximize SEO in Article Marketing The Miracle Of Marketing With Dental Newsletters Four Essential Things You Need For Stock Market Trading The Main Advantages Of Stock Market Trading Ride The Gravy Train With Dental Newsletter Marketing Get Rich Using Dental Newsletter Marketing Why Dentists Ignore The Best Marketing Tool: Dental Newsletters Social Marketing Sites