hearted
Donna Block
SHAREWORLD
I can’t go anywhere these days without someone, anyone, asking me about the stock markets. It’s like they’re having a love affair with shares and all they want is to get more and more information and get involved on one exchange or another.
But love affairs, like share prices, are precarious and you can be high as a kite or down in the dumps. However, it appears that some global share-lovers – those who haven’t been wiped out by the debacle in technology shares these past few weeks, that is – are once again taking the plunge and looking to emerging markets for high returns. International fund managers have been scrutinising which markets are the most likely to do well in today’s volatile market climate and keeping a close watch on economic and political stability in those markets.
But investing in emerging markets certainly isn’t for everyone, especially the faint-hearted. You can make a lot of money very quickly or lose your shirt just as fast. However, successful investors can be rewarded both by high returns for the price volatility and by diversifying their portfolio. These waters can be significantly choppy, however, as global money managers are constantly moving their resources into and out of markets based on prevailing market sentiment and swings in their perceptions.
Recent events in the past two years have also contributed to both these perceptions and market liquidity – the Asian financial collapse, the Russian devaluation of the rouble and debt default, the Brazilian turmoil and the long-term capital management situation. This has resulted in depressed markets.
However, many of these markets have recovered – but caution is still the rule. One of the most important rules to investing in emerging markets should be to do some research into the economic and socio- political environments in the region and specific countries and keep a close eye on the currency exchange rates as well.
For most individual investors, investing in emerging markets’ mutual or bond funds makes the most sense. These types of funds are actively managed by seasoned fund managers and, since most investors won’t have the opportunity to travel to see the companies’ products and services, doing research into the firms in emerging markets is near impossible without visiting the place and “kicking the tyres”.
Performance of emerging markets’ funds varies hugely between the investment winners and losers. Investors can visit several websites to compare mutual funds. United States website Smart Money provides an intuitive ranking of mutual funds in several categories, including emerging markets.
Information about performance, investment strategies and fund management is also provided
It’s also important to keep in mind, however, that performance can vary widely. Although recent research has suggested that the top-tier mutual funds tend to perform well in successive years, emerging markets can challenge even the most seasoned portfolio manager. A good example is Mark Mobius, Franklin Templeton’s star emerging- markets stock picker, who sees a renewal of interest in emerging market investments. He recently said in an interview with CBS, “The same phenomenon that has hit United States markets has hit emerging markets, with large tech stocks attracting investments. I think the trend will continue.”
Mobius noted that emerging markets, which have traditionally been known for their volatility, haven’t gotten any less so over the past year. “The whole world has become volatile because of the speed by which these things are taking place,” Mobius said.
When there’s a big drop in US markets – like the Nasdaq – emerging markets tend to plunge even more. But they also tend to bounce back quicker. “If you go back to 1997, Hong Kong and a lot of other markets with high correlations to the US went down, but it was temporary,” Mobius said. “The normal bear in emerging markets lasts from one-and-a-half to two years, and the normal bull lasts five. In developed markets, bulls are 10 years, and bears are three to four.” So, where does Mobius stand on emerging markets now and where is he putting his money?
He likes Mexico, Brazil and South Africa and thinks that some of the South-East Asian countries, like Thailand, will do quite well. In Mexico and Brazil he likes the financial services sector and telecom in addition to raw materials. In South Africa he is also up on raw materials as well as financial services and consumer products.
The truth is that unless investors tread very carefully into emerging market waters they can take a battering as these markets continue to confront economic turmoil and the fickle whims of foreign investors.