Many pundits had emerging markets on their buy list for 2011, but that didn’t work out so well. Some 2012 outlooks are again recommending this volatile asset class due to higher economic growth, and crippling debt loads in developed nations.
However, emerging market ETFs suffered during the “risk-off” bouts this year. Some investors may be understandably wary of recommendations to buy emerging markets after their underperformance in 2011.
According to an International Business Times article at the start of 2011, emerging markets were supposed to spearhead global growth as the developed economies slowed to a crawl.
Vanguard Emerging Markets ETF (NYSEArca: VWO) was down 20.8% year-to-date and iShares MSCI Emerging Index Fund ETF (NYSEArca: EEM) was 21.0% lower year-to-date. In comparison, the SPDR S&P 500 (NYSEArca: SPY) is down 1.5% year-to-date. [China ETFs Struggle on ‘Hard Landing’ Fears]
A year ago, some market observers believed that the unprecedented loose monetary policies inundated the markets with liquidity, and all the extra cash would find its way into emerging market assets.
The emerging markets were expected to attract investors due to their rising domestic consumption, increasing infrastructure projects and overall economic growth.
Now, fund managers are once again pointing to the emerging markets as the investment class to beat in 2012, Moneyfacts reports. In a recent Association of Investment Companies’ survey, 27% of responding fund managers say emerging markets will be the best performing area. [What’s Next for Emerging Market ETFs?]
“Fund managers are not surprisingly cautious about next year’s prospects, predicting that Eurozone worries will once again preoccupy markets,” Annabel Brodie-Smith, AIC communications director, said. “Managers have tipped emerging markets as the best performing region for the third year in a row.”
“Emerging markets fundamentals have never been this strong, even more so when compared to their developed peers,” Dr Slim Feriani, manager of the Advance Developing Markets and Advance Frontier Markets trust, said in What Investment.
Vanguard Emerging Markets ETF
For more information on the emerging markets, visit our emerging markets category.
Max Chen contributed to this article.