Wednesday, June 06, 2012

Importance of Emerging markets in portfolio



Here are my comments:
  1. Growth is in EMs: If you use GDP growth in addition to GDP, emerging markets will come out still higher.
  2. Currency story: The undervalued currencies of EM economies make it good opportunity from currency gains aspect as well.
  3. Known trajectory: EM economies require product and services, regulations, infrastructure along well established and well understood lines. We have done such things in developed markets before and thus it is less risky.
  4. Less consumer leverage: One significant difference between other economies and EMs is consumer is not leveraged. In fact there is substantial class of people with good amount of savings and latent demand. Thus, once government policies are on track, you can have growth and not face deleveraging.
  5. Political risks: Government or political risks, to my mind are same as developed countries. All politicians are jack-asses and we have seen how politicians from any country, developed or emerging, can turn it into a banana republic. Further, some entrenched vested interest may work against developed economies in this case.