In an article on the 6th of July we looked at emerging market funds. In that article, we noted
"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 housing market and high gasoline price induced slow down and inverted yield curve indicate a coming slow down or at worst a recession in the U.S. It is the growth in the emerging markets and the booming export sector that has to rescue the U.S from the coming slowdown. Many people argue that all the consumption is happening in the U.S and the recession will hit the emerging markets hard as well. However, the growth in China and India have been phenomenal and a slow down in the U.S is not likely to induce a slow down in these markets.
EEM dropped from a high of 111 to 82, a drop of 36%. It is a well known phenomenon that EEM does well in the November - April period and hits a slump in between. EEM has already recovered about 17% from its lows two months back. Comparing EEM and VWO, EEM has done slightly better than VWO by about 1% point or so in the last one month. EEM/VWO are well positioned to do well in the next year primarily because of the booming markets in India and China. Other emerging markets around China like Korea, Taiwan, Thailand and Singapore are increasingly being driven by exports to the Chinese market.
In the next few blogs, we will continue to look at some of the emerging markets and look at other opportunities in the U.S market.