Despite problems brought on by the sub-prime crisis, emerging markets registered a gain of 40% in 20...
Despite problems brought on by the sub-prime crisis, emerging markets registered a gain of 40% in 2007, bringing emerging markets returns for the last five-year period close to 400% in US dollar terms.
Last year, most stockmarkets were supported by a robust macroeconomic environment, surging money supply, rising commodity prices, stronger emerging market currencies, improved corporate earnings and significant fund inflows.
Investors remained nervous due to widespread concerns over the impact on the global economy of the credit crisis in the US. This uncertainty is expected to continue in the near term or at least until the full extent of the sub-prime problem becomes clear.
January saw global markets experience significant volatility as concerns of a potential recession in the US, global credit concerns and an unwinding of the yen carry trade triggered a sell-off.
European markets such as Russia and Poland recorded double-digit declines while China was the worst-performing market in Asia as investors remained cautious of the government's tightening measures.
The correction was most likely further exacerbated by Societe Generale's liquidation of over US$70bn (£35.7bn) in equity-linked index derivatives, which had an impact on all markets, including emerging markets.
This had nothing to do though with the fundamentals of the markets, but rather the bank's positioning and leveraging.
On the other hand, Latin American markets outperformed their emerging market peers as the region remained popular with foreign investors.
Within this environment, emerging markets offer superior growth opportunities at historically lower risk levels due to factors such as the privatisation and deregulation of key industries, implementation of appropriate fiscal and monetary policies, stable political environments, improving corporate governance, enhancement of competitiveness, higher productivity because of a younger and better-trained labour force, as well as a huge consumer base.
Going forward, we continue to take a long-term view that the underlying fundamentals of emerging markets remain intact and future prospects are good.
- Investors remain nervous over the impact of the sub-prime crisis on the global economy. This uncertainty is expected to continue in the near term.
- Emerging markets continue to offer superior growth opportunities; the underlying fundamentals remain intact and prospects for the future are looking good.
By Dr Mark Mobius, head of emerging markets, Franklin Templeton.
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