Thursday, July 06, 2006

Recovery in Emerging Markets

In the article, we looked at emerging market ETFs. We also noted the strong fundamentals in these countries.

"The fundamentals in these countries are solid. In the late nineties, there was the Asian currency crisis where many countries didnt have enough dollar reserves to handle the capital exodus. Many countries have large foreign currency reserves and their balance of payment situation is good. The growth rate in the emerging markets is likely be several points higher than the U.S market for the next several years."

The emerging market ETFs and market indices have bounced back from the lows by up to 10-15%. Anyone that bought these ETFs at lows stands to make some money.

The Indian markets bounced back by 18% from its lows. The Brazilian index bounced back by about 9% from its lows. The Mexican market rebounded by about 20 percentage points. The Shanghai Composite in China recovered by about 10%. Singapore came back by about 6.5%. South Korea came back by about 8%. Taiwan has come back by about 4%.

So overall, the trend is one of recovery. The growth in US interest rates poses a near term risk in the growth of the emerging markets as foreign institutional investors pull the money back to more attractive and safe destinations at home. The longer term ( two-three year ) prognosis is for the world economy as a whole is one of growth. The emerging markets should do just fine in this scenario growing at a faster pace. The emerging markets still provide some very good opportunities and one may look to add to ones positions during further dips.

No comments: