Consider Investing in Emerging Markets
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live securely with dignity and fulfill their religious and moral obligations towards charitable activities)
Emerging markets are very volatile. Investors need patience – great patience at that – to be in emerging markets.
At times, they perform like a yoyo, up and down substantially.
For myself, I examine my emerging market performances yearly. Over the years, it has paid off handsomely.
Emerging markets diverged from their developed world counterparts and increased 3.7 percent during the fourth quarter, resulting a 39.8 percent gain for 2007.
Market Review: This is the fifth consecutive year of double-digit returns for emerging market equities. Investors continue to be drawn to the high economic rates in most emerging market countries.
High commodity prices have also provided a boost for many of these markets.
Several countries that had been leading the benchmark during the first nine months of the year declined during the last quarter, while some lagging markets began to outperform.
Although, “emerging markets” are considered a single asset class, each country has its economic and political considerations.
These differences came to the forefront in the last quarter of the year.
Asian emerging markets were up only 0.2 percent during the quarter, yet they increased 41.6 percent for the year.
China fell 3.7 percent, but remained one of the leading emerging markets, up 66.2 percent for the year.
The Chinese economy is showing signs of high inflation, and the government’s latest tonic of interest rate increases and lending controls has done little to cool inflation or the economy.
While GDP growth expectations have come down, most economists expect official growth rates to be above 10 percent, with real numbers higher than that.
The Korean market fell 4.6 percent in the quarter.
There appears to have been a shift in investor sentiment in Korea away from heavy industrial companies in favor of companies that benefit from domestic growth, including banking and real estate-related companies. Indian stocks rallied 23.3 percent in the quarter.
India’s relative lack of integration into the global economy has made it a safe haven for investors concerned about a global slowdown.
Latin America equities were up 7 percent in the quarter and 50.7 percent for the year.
However, Brazil, with a 13.3 percent return, was the only major market in the region with gains during the quarter.
Brazil’s 80 percent return for the year was the highest of any major market.
High commodity prices and good news from Petrobras, the Brazilian oil company, buoyed the market. I had a great experience earlier buying Petrobras.
Mexico lost 2.1 percent on fears of high economic inflation and that a slowing US economy would be detrimental to its markets.
The Europe, Middle East, and Africa (EMEA) regions’ gain of 9 percent turned a laggard into the best-performing emerging region for the quarter and boosted annual performance to 26 percent. Russia added 17.4 percent during the quarter, but its 24.8 percent increase for the year made it one of the poorer-performing major markets.
Energy-related names have boosted Russia, as has some resolution regarding politics once President Vladimir Putin was no longer formally in charge of the country.
While positive in the quarter (up 1.3 percent), South Africa has lagged most of its peers for the year. Turkey was up 5.9 percent for the quarter and 74.8 percent for the year.
Outlook: Despite the gains in 2007, valuations in many emerging markets remain relatively attractive.
As economic forecasts for the developed world and the United States in particular have deteriorated over the past few months, the economic outlook for most emerging market countries has remained positive.
Once again, please do your homework and do extensive research before investing your hard-earned money.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
