Emerging Market Equity Question


Emerging markets will have an impact on the economic recovery ahead.

We are seeing economic times that few of us have seen before. Markets are terrified as evidenced by  the way yesterday’s 4 week US T Bills at 0% interest were snapped up by investors.

We try to understand this by looking at the past…the most obvious history being the 1929 to 1932 economic depression.

However every future is different.

One huge difference we’ll see in the recovery ahead is how the much larger global market and the development of emerging markets impacts productivity and growth.

The last two messages looked at  high value major market and emerging market portfolios.

Our studies in this course of global equity and bond markets over the past three years has shown that emerging markets have vastly over performed major markets AND emerging markets have recovered faster than major markets after down turns.

We can see this long term fact in the performance figures from the last two days of study.

State Global Advantage Major Market Fund  Total Return Per Year

Time                   Inception  5 years    3 years     1 year      3 months

MMHV                  6.59%      2.26%     -8.72%    -41.28%     -25.35%
MSCI                    4.31%    -1.06%     -10.61%   -34.41%     -22.52%

State Global Advantage Emerging Market Fund  Total Return Per Year

Inception   5 years      3 years     1 year       3 mos

EMHV                 4.25%        9.69%      -9.09%   -49.16%    -34.84%
MSCI                   1.22%        6.33%     -7.76%   -49.74%    -35.71%

This shows how emerging markets have out performed major markets…UNTIL THE PANIC SET IN.

In the last year the Morgan Stanley major markets index significantly over performed the emerging market index.

This makes sense because emerging markets tend to be far more thinly traded. During a rapid exit, by many investors, prices would fall faster.

Here are three lessons  and two  questions.

Lesson #1:  The significant (five year) history suggests that emerging markets are better places to invest than major markets.

Lesson #2: Thinner emerging markets drop faster than major markets on the way down.

Lesson #3: Thinner emerging markets tend to recover faster upon recovery.

Question #1: Will emerging markets once again recover faster?

Question #2: When will be a good time to invest in emerging makrets?

I have my opinion which I’ll share next week…but I want your ideas, questions and opinions first.

Here is your homework.

Look at the numbers above again.  Plus study Portfolio Review #1

and look at the two charts from finance.yahoo below.

Emerging Markets Chart

eem

Major Markets Chart

iwrd.mi

Thoughts? Questions?  Send them to me at gary@garyascott.com. Please put MC in the subject line so I can give your questions priority.

Until next message may all your investments emerge!

Gary

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