Emerging Markets Letdown

March 02, 2011

 

S&P Global Broad Market Index (BMI) Global, Feb. 28, 2011
Emerging Markets
BMI Member 1-MONTH YTD 3-MONTH 1-YEAR 3-YEAR
Global 2.76% 4.13% 11.92% 20.66% -4.57%
Global Ex-U.S. 2.24% 2.99% 11.27% 19.47% -10.00%
Emerging -0.45% -4.00% 2.12% 18.32% -2.46%
Chile -3.35% -11.57% -7.56% 27.13% 38.25%
Peru -0.15% -8.49% -3.37% 43.84% 32.78%
Philippines -0.32% -8.37% -0.29% 44.18% 25.14%
South Africa 6.00% -6.78% 6.14% 30.25% 19.65%
Thailand 4.45% -5.34% -2.24% 46.45% 17.03%
Malaysia -1.87% -0.37% 5.29% 34.05% 12.92%
Indonesia 5.86% -4.16% -0.04% 32.79% 10.16%
Mexico 0.22% -2.48% 2.87% 24.64% 6.17%
Turkey -3.15% -11.52% -12.56% 18.18% 1.41%
Taiwan -8.22% -5.62% 5.61% 23.56% 1.28%
Brazil 2.67% -1.99% 4.42% 11.91% -2.02%
China -1.51% -1.67% -2.42% 11.26% -4.86%
India -2.51% -14.99% -9.46% 5.23% -14.65%
Morocco 2.38% 2.99% 10.48% 16.22% -18.22%
Russia 5.55% 9.05% 21.22% 35.03% -20.17%
Hungary 4.37% 16.67% 26.26% 8.86% -22.56%
Poland 0.84% 2.67% 12.87% 20.74% -25.48%
Czech Republic -1.72% 6.72% 17.48% 9.23% -30.29%

 

Over the past 12 months, emerging markets equities as a segment brought in over 18 percent gains. And when you dig deeper, the BRIC countries look good. Russia turned in 35 percent performance in the past year, with Brazil at almost 12 percent, China at just over 11 percent and India over 5 percent. In fact, every country S&P tracks as an emerging market provided positive gains over a one-year time frame.

Everything goes topsy-turvy three years out, however, with extremely volatile performance across the board. Russia, the strongest market previously, turns in an abysmal -20 percent return. India’s story is much the same: an almost -15 percent performance over the longer time period. Aren’t these the same markets we’re supposed to be jumping for joy over? If you’re in a buy-and-hold mindset, they’re certainly not winners.

Here’s where it becomes much easier to separate the wheat from the chaff. The countries that work best for long-term investors are vastly different from what the media focuses on. Chile and Peru boast big numbers, with 38 percent and 33 percent gains, respectively—in spite of slight, short-term negative numbers. From the long-term view, South Africa also looks like a strong contender; S&P’s data show gains of almost 20 percent there over three years, as well as a 6 percent increase in February.

The point here is that patient investors have more options available if they look farther out. It’s easy to follow the hype and think a play on China or Brazil is the right move. But investors need to evaluate every option. Judging from S&P’s data, the paradigm for how investors should be looking at emerging investments is starting to shift. I’m extremely interested in revisiting this data in six months—I can’t wait to see what changes.

 

 

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