The Pros of Investing in Emerging Markets

By on February 19, 2009

Ben Steverman at Business Week has penned an article about the merits of investing in the stocks of emerging market economies despite the obvious risks. Steverman cites Allan Conway, head of emerging market equities at Schroders, who lists the advantages as:

1. No credit crunch or excessive levels of debt in most emerging economies.

2. Economic fundamentals. Because of large reserves, nations like China don’t need to borrow to fund their stimulus packages.

3. It’s not true that China and other countries are unduly reliant on exports to developed nations. Domestic demand has been a big contributor to growth, and so have exports to other emerging nations.

4. Stocks are very cheap in emerging economies.

5. Most global investors, spooked by last fall’s market meltdown, are very much underweight emerging markets. There is money waiting on the sidelines.

6. But the main argument has to do with economic growth: Conway believes emerging economies will grow 3 to 4 percent faster than developed nations. “This three to four percent growth [advantage] will continue into the future, irrespective of whether this is a recession or depression and how long it lasts,” Conway says. Even in a worst-case scenario, growth in places like China should remain positive.


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