Emerging Market Travails
Just a few years ago, emerging markets were the toast of the town. In general, emerging countries recovered much faster than developed countries following the financial crisis and global recession. The MSCI Emerging Markets Index delivered pretty remarkable (and highly volatile) performance during the past decade. According to the MSCI fact sheet, annual returns have ranged from down 53.33 to up 78.51:
Annual Returns (%)
2005 34.00
2006 32.14
2007 39.42
2008 -53.33
2009 78.51
2010 18.88
2011 -18.42
2012 18.22
2013 -2.60
2014 -2.19
Through September 4, the Emerging Markets Index was down 17.54 percent. While that’s a significantly smaller swing than some we’ve experienced during the past 10 years, any double-digit dip demands attention. The Wall Street Journal explained the downturn like this:
“China’s economic slowdown is having broad implications, hitting regional economies like Taiwan, Malaysia, and Vietnam where manufacturing data showed declines for August. Emerging markets are also nervous about the possibility of an interest-rate increase in the United States, which would encourage global investors to invest more there. China’s Shanghai Composite Index is down 39 percent after hitting a seven-year high in June.”
Indeed, money is moving back into the United States. Experts cited by The Economist said about $44 billion has been pulled from emerging markets since mid-July.
Christine Lagarde, Managing Director of the International Monetary Fund (IMF), indicated the IMF’s outlook for global growth was likely to be revised downward, in part, because emerging economies are at risk of being negatively affected by commodity price weakness, China’s slowdown, and America’s monetary policy.
How bad will it get in emerging markets? The IMF’s July projection was that emerging market and developing countries would grow by 4.2 percent in 2015 and 4.7 percent in 2016. Developed economies, on the other hand, were expected to grow by 2.1 percent in 2015 and 2.4 percent in 2016.
Please keep in mind, international investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
Weekly Focus – Think About It
“I never blame myself when I’m not hitting. I just blame the bat and if it keeps up, I change bats. After all, if I know it isn’t my fault that I’m not hitting, how can I get mad at myself?”
–Yogi Berra, Baseball player
Sources:
http://money.cnn.com/2011/02/15/markets/emerging_market_outflows/
https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-net.pdf
https://www.msci.com/end-of-day-data-regional
http://www.wsj.com/articles/no-emerging-markets-in-your-portfolio-look-again-1441388857
http://www.economist.com/blogs/freeexchange/2015/09/emerging-economies
http://www.imf.org/external/pubs/ft/survey/so/2015/NEW070915A.htm
http://www.brainyquote.com/quotes/quotes/y/yogiberra139940.html#vAfpmvvlocAtj1YR.99
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