Political Risk Latin America Blog @PolRiskLatam

Suddenly, Emerging Markets Look Complicated Again

Posted in News and Articles, Political Risk by politicalrisklatam on February 28, 2011

by Paul J. Lim for The New York Times, February 26th, 2011.

Late last year, when demand for emerging-market stocks reached new heights, investors viewed the threat of global inflation as yet another reason to keep betting on them.

That’s because the fortunes of many companies based in fast-developing regions like Asia and Latin America are linked to commodity production, which stands to benefit when inflation rises. That would explain why nearly three-quarters of professional money managers surveyed by Russell Investments late last year described themselves as “bullish” on emerging-market equities, even as inflation worries began to climb.

Yet after the first real signs of inflation surfaced this year — in January, consumer prices in Europe and core wholesale prices in the United States both climbed to their highest level in two years — emerging-market stocks experienced their first real setback since the global financial panic of 2008. The average mutual fund that invests in a diversified basket of emerging-market shares has lost nearly 6 percent of its value so far this year, according to Morningstar. The Standard & Poor’s 500 index of domestic stocks, meanwhile, has climbed by 5 percent.

This development would seem to underscore the growing complexity of investing in emerging markets — as well as their growing risks, strategists say.

On the one hand, the poor performance of these markets reflects a simple fact: Many developing markets have become a victim of their recent success. (continue reading… )

 

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