After several years in the doldrums, fund managers are once again turning a serious eye to emerging m...
One of the main problems for emerging market funds is the shortage of reliable information needed to assess emerging market risk, a factor that has resulted in many managers bombing out. There are of course exceptions. The Ashmore Russian Debt fund springs to mind - the only Russian Debt fund left out of eight prior to the Russian debt crisis in 1998 - as does the new Thames River Capital emerging market team that accounts for a lot of the emerging market talent around at present. But these are perhaps exceptions rather than the norm.
As a general rule it is this overall lack of reliable information that has been one of the main reasons investors have shied away from emerging markets in the past, according to Richard Thomson of GrowthMarkets.com (www.growthmarkets.com).
GrowthMarkets.com is a website launched specifically to fill this gap and includes a wide range of information that addresses the special problems and issues connected with investment in emerging markets.
As well as being able to compare the latest investment opportunities in India, Brazil or Slovakia, the site allows comparison of the relative merits and costs of, for instance, buying American Depository Receipts in emerging market companies or investing in Webs.
This focus on quality of information is also behind the development of another internet initiative, Professional Investment Tools (www.investors-routemap.com), set up by Nick Dewhirst, ex-Kleinwort's. Dewhirst uses a proprietory method of quantifying volatility in markets - both developed and emerging - to assess whether a market is cheap or expensive. Dewhirst subscribes to the view that risk is not about whether a market is good or bad, rather a question of valuation.
Dewhirst excludes any country where inflation levels are above 20% which is his benchmark for whether serious sums of money are likely to flow into the market. On this basis, Russia, China and Turkey are currently excluded from rankings. He uses four valuations to assess a market's value. Using quantitive methods comparing 20 years of data focusing on p/e ratios, bond yields, interest rates, market capitalisation and GDP, Dewhirst then calculates the average of all four valuations and ranks markets accordingly. On this criteria, the top five cheapest markets are Thailand, Indonesia, Korea, Japan and Malaysia while the most expensive are Portugal, Chile and India. What is more interesting for investors is that while the price of investing in emerging markets may always entail higher risks, recent developments go someway to ensuring it need not be so risky in future.
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