Emerging markets still a good investment
Emerging markets have generated far greater returns than developed economies during the last five years, but recent tragic events should remind investors that high risk is the price of high rewards.
The assassination of Benazir Bhutto in Pakistan and post-election rioting in Kenya have demonstrated how political instability can overshadow hopes of economic growth.
Such sudden and unexpected setbacks also show why you should not invest any money in emerging markets which you cannot afford to lose – or if volatility will keep you awake at night. ….
Alan Steel, of Alan Steel Asset Management, said, "History tells us any sharp stock market falls – whether they occur in emerging markets or developed economies – are likely to be short-term knee jerk reactions. For example, Kennedy's assassination in 1963 saw the American stock market fall by 3 per cent, but it was up 12.4 per cent three months later and 15 per cent six months later.
"A similar pattern followed the Gorbachev coup in Russia, so I can't imagine it being any different this time. Emerging markets should show good returns again this year. The BRIC Countries – Brazil, Russia, India and China – contain 43 per cent of the world's population, and their economies hold real economic potential." ....
Mr Steel favoured First State Asia Pacific Leaders and Fidelity South East Asia, both open-ended investment companies (OEICs), for investors seeking a relatively cautious approach to this high-risk sector.
He said, "These last two aren't the best performers as they are not so high risk, compared to the single company funds, so they are a good place to be for some exposure but less volatility."
Latin America
The sub-prime mortgage crisis in North America has largely left the economies of its southern neighbours unscathed, as they benefit from soaring commodity prices. ….
Mr Steel added, "When you think of Brazil you think of nuts. But Brazil has been making large oil finds and is likely to become the 10th largest oil exporter in only a few years." He recommended Threadneedle's Latin America unit trust, along with Allianz RCM BRIC Stars for investors seeking exposure to this continent with relatively less risk than single country funds. ….
Quote courtesy of The Daily Telegraph, 12 January 2008.
