Risk and Reward in Emerging Markets

DJIA vs Emerging Market Index from WSJ

DJIA vs Emerging Market Index from WSJ

In discussions with clients and prospective clients, one question routinely comes up, regardless of market conditions:  “How much emerging markets should I have?” or some variation.

I thought this article by Gregory Zuckerman from the Wall Street Journal this morning did a good job of summarizing where these markets are performance-wise and how they stack up against developed markets like the US and Western Europe on several metrics.

From the WSJ:

“For years, shares and bonds from emerging markets made investors wary…That view is changing. Last year’s financial meltdown raised questions about the attractiveness of developed nations, which have been dealing with their own serious debt, currency and governance issues.”

Investment managers are now asking themselves:

If developed markets and emerging markets both face the same or equal risks (heavy debt, weak currencies, poor corporate governance and high volatility), why not just go for the growth of emerging markets, which in theory, offers more return and growth potential?

Here’s a quote from the piece that sums up the conventional wisdom on that higher return potential:

Daniel Arbess, manager of the Xerion Fund, a hedge fund, at Perella Weinberg Partners, says that “emerging markets are arguably the single most important avatar of investment opportunity for our generation. The demand for commodities to support the modernization and urbanization of these and other developing economies, and the demand for food and products by growing consumer classes, should continue to fuel opportunities for years to come.”

So how much emerging markets is enough emerging markets for a portfolio?  Of course, the answer is different for everyone and the variables are endless in terms of determining a set percentage.  It’s also important to point out to people that it’s not just how much you have invested in emerging markets, but the method or vehicle you use to get that exposure.  Different strategies will obviously yield greatly differing results, just like obtaining exposure to any other investing theme or sector.

The question about the distinction of markets that was raised by 2008 (are developed markets any safer than emerging markets?) will linger for quite a while longer as more investors go for the growth overseas despite what the answer may be.

Source:

Emerging Stock Markets Looking Better (WSJ)

Full Disclosure:  Nothing on this site should ever be construed as research, advice or an invitation to buy or sell any securities.  See my Terms & Conditions page for a full disclaimer.

Tags: , , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. tangerine bank sign in commented on Jan 18

    … [Trackback]

    […] Read More on on that Topic: thereformedbroker.com/2009/09/27/risk-and-reward-in-emerging-markets/ […]

  2. bandar77 commented on Jan 23

    … [Trackback]

    […] Find More on on that Topic: thereformedbroker.com/2009/09/27/risk-and-reward-in-emerging-markets/ […]