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Emerging Markets Exposure

When should you have an exposure to emerging markets? Should you always have an exposure in emerging markets? If you are a global funds manager, you can only underweight or overweight or go neutral weighting on emerging markets. They are usually very small markets. No serious fund managers will be able to follow each and every one in detail. When the big picture is right, then its time to go into emerging markets. Can emerging markets rally on its own without foreign funds inflow,... unlikely. Because of the sheer weight of foreign funds flow, when they start to move in, its hefty. Another trait is that rallies will be superb but will not last. You will not get the 3 or 5 year bull runs like in the US. Its a hit and run. If you get a one year bull run, thank your lucky stars. Emerging markets are not for buy and hold players.

Emerging markets are your girlfriends, not wife material.

Looking at the top and bottom performers for each year, you will find themes such as export-driven markets, resources rich markets, BRICs play, Latam play, ... in the same way when the run is over, either resource dependent countries will get hit, or export contraction concerns, or currency misalignment issues, or mismanagement of government or corporate debt levels, or bubbles bursting in property... but the one prevailing "really bad factor" is political stability (or lack of). If there is political unrest or uncertainty, funds will shun your markets for a long time.

Which emerging markets will outperform in 2009. It has to be the ones least affected by the global banking crisis and the ones that can lead the way in sufficient stimulus. China and some of the Latam countries should be the outperformers. Export dependent nations will have to play catch up. Eastern Europe and Central Europe should be the worst performers as their problems will take a lot longer to unravel and fix.

Top 5 / Bottom 5 markets

Egypt +161%
Columbia +107%
Jordan +73%
Russia +73%
Pakistan +63%
Morocco +13%
Thailand +8%
Taiwan +6%
Malaysia +2%
Venezuela -24%

China +82%
India +73%
Morocco +68%
Argentina +67%
Peru +62%
Thailand +11%
Pakisatan +3%
Israel -5%
Turkey -7%
India -30%

Peru +94%
Brazil +79%
Turkey +74%
India +73%
China +66%
Hungary +16%
Columbia +15%
Mexico +12%
Taiwan +8%
Argentina -4%

Morocco -11%
Columbia -25%
Israel -30%
Chile -36%
South Africa -38%
Hungary -61%
Turkey -62%
India -64%
Russia -73%
Pakistan -74%

1. Top 10 Emerging Market Returns Chart (1993-2008):

click to enlarge

Morocco, Colombia and Israel were the three top countries in 2008.

2. The Top 5 Best and Worst Performing Countries Chart:

Last year Pakistan was the worst performer with a loss of 74%.

p/s photos: Tang Wei


Big Bad Wolf said…
Mark Mobius is bullish on emerging markets, especially on Brazil, China and Russia this year.
Could the fund managers be focussing their attention on these countries?

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