With global growth, copious liquidity and low interest rates spurring riskier investment strategies, emerging market equities and exchange traded funds have been among the most attractive assets this year.
“The main argument for investing in international equities is for diversification through exposure to different countries and economies, slightly different sector weightings, and foreign currencies,” according to Morningstar analyst Patricia Oey. “Not surprisingly, emerging-markets equities offer greater diversification benefits for a U.S. equity-dominated portfolio, relative to international developed-markets equities.”
Additionally, emerging markets as a whole have been outperforming developed economies, despite the heavy sell-offs in recent years due to high market volatility.
“The MSCI Emerging Markets Index [has returned]an annualized 15% over the past 10 years to Nov. 30, 2011, far outpacing the S&P 500’s 3%,” Oey added. “At this time, valuations in emerging markets (as measured by the MSCI Emerging Markets Index) are near 10-year lows.”
Currently, emerging market observes are closely monitoring the debt situation in Europe, as any signs of uncertainty will affect emerging market equities first. [Emerging Market ETF Buying Spree Pauses]