Emerging markets: investor tips

By Howard Goldring, January 28, 2010
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Emerging markets provide a substantial long-term investment opportunity. Over the past 20 years, economic growth in the emerging markets has been much faster than in the major western economies. China, the biggest of the emerging markets, is projected to have the world’s second-largest GDP in 2010 and the largest by 2030. In light of this impressive growth, China provides the most appealing long-term investment of such markets.

Following the crash of the Asian banking system in the late 1990s, Asian central banks were compelled to put in place a sound banking system, meaning most of the local banks entered the current crisis as well-capitalised institutions with conservative lending practices. This in turn meant these countries did not suffer from the collapse of confidence in banks that occurred in the US, UK and Europe.

Despite this crisis, the world economy will grow in the decade ahead, led by two powerful trends. The first is the relentless spread of new technologies and products. The second is growing consumer expenditure from the emerging markets.

Ironically, this will be encouraged by the spread in these countries of “sophisticated banking” and more readily available credit. The emerging markets were in pole position to lead global growth out of the crisis, but will now be restrained by weaker demand from the US and Europe, which have big budget deficits to correct. This will particularly affect China, the world’s largest exporter.

Emerging markets are like developed-country stock markets on steroids, and returned 80 per cent in the past ten months, compared with 44 per cent for the world index, showing they normally move faster than developed markets in both good and bad times, and are prone to excess.

These markets are volatile, and need a diversified investing approach. Emerging markets are not as cheap as they were a year ago, but investors who can stomach the thrills and spills should start to make a modest commitment regularly so their entry price averages out over time. It should represent money you can afford to see suffer large losses, but with which you hope to do really well in time.

Howard Goldring is Chairman of Delmore Asset Management, a London based wealth adviser

    Last updated: 4:35pm, June 3 2010

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