I’ve been writing a lot lately about investing in emerging markets. In recent pieces, I’ve explained the case for emerging market bonds as well as why underperforming emerging markets equities are worth a second look.
It’s no wonder, then, that many investors are asking me for more details regarding my views of emerging market debt and equities.
So today’s “Ask Russ” blog post is dedicating to answer those queries, including some questions I received during a recent call with clients. If you have an investing-related question you’d like me to answer, please post it in the comments section below. Also, be sure to check out earlier installments of this series here, here, here and here.
Q: Are you concerned about how fast the emerging debt market has grown in recent years?
A: Somewhat, but I’m perhaps a little less bothered than others because:
- The increase has been from a very low base
- Overall, emerging markets have debt levels relative to both gross domestic product and income that are still considerably lower than those of developed markets.
Q: You obviously like emerging markets. Which emerging market countries will take the lead going into 2014?
A: In 2014, some of the smaller emerging, and even frontier, markets have the potential to do well because that is where we have seen some of the best valuations and growth. I’m a little bit more concerned about some of the larger emerging markets, particularly India.
That said, on the larger emerging market front, China is one place I still like, although it hasn’t paid off this year. China is a market that has underperformed for a number of years but because of that long-term underperformance, it has some very compelling valuations. And while Chinese growth is never going to resemble what it was three years ago, China is still an economy that’s capable of growing 7% to 8% over the near term and probably about 5% to 6% over the longer term. That is relatively fast growth in a slow growth world. China is accessible through funds such as the iShares MSCI China Index Fund (MCHI).
Q: You say that emerging countries are like developed countries 20 or 30 years ago — developed countries have suffered some crises since then. Do you see any potential financial crises coming up for emerging countries? If yes, what would be the potential reasons and features of these expected crises? What’s the outlier risk that concerns you about emerging markets?