Welcome back to the table, emerging markets! As a recent Wall street Journal article points out, emerging markets are back. Emerging markets, defined as rapidly growing economies coming from a smaller base (but notoriously hard to list!), have bounced back from their lows this year. Are emerging markets re-emerging?
Shooting BRICs
Four countries summarize the idea of emerging markets, and other smaller economies are based on the success of those four. The term BRIC refers to Brazil, Russia, India, and China. All four economies have experienced massive growth over the last decade, and an even more massive influx of foreign investment. To this day, the BRICs and emerging markets are somewhat synonymous, although there are obviously many more countries than those four.
The problem with the WSJ (and me) writing this article now is that the BRICs have already rebounded quickly from their recent lows. Of particular note is China. The Xinhua Index, tracking the 25 largest Chines companies, is tracked by the ETF [[FXI]], run by iShares. The index has already increased 95.47% since last October 27th, the low. This is not exactly evidence it’s time to buy. Smart buys most likely won’t be found in the BRICs, but in a country that may not be on too many people’s radar yet.
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The other issue the WSJ article makes abundantly clear is that if the market (in this case, referring to the world) falls again, emerging markets will get hit again… and most likely harder than the more mature economies like last time. In this era of global trade and interconnectedness, economies will not be immune from any global economic contagions. If you expect the mature economies of the US and Europe to have a second drop, you may want to think twice about the emerging crowd.
In terms of full disclosure, I do have some emerging market funds. I have held steady through the downturn. Also, I submit to you this question: Will emerging markets continue to perform well, or is the recent rally a mirage?
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