Development Trend Of Emerging Market Economies

But many experts at Walton business school and elsewhere say it is too early to pronounce the death penalty in emerging market countries. They think that the biggest mistake of this pessimistic argument is to look at the diversified emerging economies in a single way, and they are short-sighted. Many commentators say that stocks in emerging economies are still very attractive if they are carefully chosen, but they also admit that some emerging economies do have risks.

"The way to get higher returns is to turn to emerging markets," Richard Marsden, a professor of finance at Walton business school, said of stocks. He thinks the reason is simple: emerging market countries have more room for growth than developed countries.

Morgan Kerry capital management believes that, in fact, many emerging market stocks have a low price earnings ratio of 10-1, which is very attractive.

"Now that the S & P 500 is at a record high, it is a good time to invest in emerging markets," Ms Wong said. She also cautioned that the new incident may change her view, but it does not necessarily reflect her company's views. She is particularly keen on "Frontier Markets (FM)", such as Vietnam, Bangladesh and Saudi Arabia. These countries are less developed than the famous emerging market countries such as China, India and Russia.

She said: "we believe that the frontier market is actually the 2 edition of emerging markets. If you like emerging markets 10 years ago, then you will like the frontier market now."

　　 the sword of Damocles

So what causes all this pessimism?

In May of this year, Federal Reserve Chairman Bernanke said that the Fed's $85 billion / month bond purchase plan is about to start shrinking, and some have turned the process into a "tightening", which has severely damaged investor confidence. The plan aims to boost the US economy by maintaining low long-term interest rates. But lower interest rates have led many investors to invest in emerging markets with high risk and high returns. Many people believe that if the Federal Reserve starts to weaken the plan, capital flows will reverse, as demand drops, leading to falling prices of emerging market stocks.

This fear has become a self fulfilling prophecy. The share price of the MSCI emerging market index fund fell from about 44 dollars in early May to 37 dollars in the late June, and nearly 17% in six weeks. In September, the Fed said it would suspend its debt purchase plan, and the index fund was able to regain its lost territory, but it also experienced ups and downs during the period, reflecting the panic mentality of investors. Many people worry that the Fed's "tightening" will weaken the stock market of emerging markets once again. That is to say, this bloody storm is only a reprieve, rather than a "pardon", and its ultimate fate is inevitable. "For the emerging market, the Fed's policy is the sword of Damour and Chris," Patrick Legland, head of global research at Societe Generale, said in a recent report to investors.

Professor Richard Marsden said: "people have rediscovered that emerging markets are vulnerable and vulnerable to monetary conditions in industrialized countries." He also pointed out that this may be a good thing, which can reduce the "foolish money" blindly follow suit. {page_break}

MS Wong believes that people worry about the Fed's "tightening" and worry that the US interest rate will eventually rise. The Fed will only consider the "austerity" plan when it believes that the US economy has begun to lift, and the economic boost of the developed countries will inevitably lead to an increase in demand for products and commodities in emerging countries. She said: "if the economy in the United States, Europe and other western countries grow, then who will make profits? Of course, the United States will make profits, but the emerging market will also make profits."

Kent Smetter, Professor of Business Economics and public policy at Walton business school, said there is a clear link between developed and emerging economies, though they may not always be in step. He pointed out that such step inconsistency is the factor used by investors in dispersing their portfolios: when stocks of developed countries are weaker, those in emerging markets may get stronger; of course not always, but sometimes they are. This helps to curb the ups and downs of portfolios.

"It is certain that many emerging market countries are exporting to the United States," he said. European Union Market, so emerging market countries are dependent on the US and EU economies. But the products produced by many emerging markets, especially the products produced in the frontier market, are also consumed locally and in other parts of the world other than developed markets.

He also believes that the United States and many other developed countries are troubled by long-term government debt, while emerging market and frontier market countries are generally not troubled by such long-term government debt problems. He said: "because most emerging markets and frontier market countries are not very good in debt market in history, the government debt issued by these countries is relatively small, while the United States and the European Union have issued many hidden debts in the form of equity plans, making their budgetary pressure enormous. Therefore, in the emerging and cutting-edge markets, diversified operational opportunities can be found to cope with the huge inflationary pressures that will soon emerge in the United States and the European Union.

Another argument for emerging markets is that emerging market countries easily obtain large sums of money by exporting goods and natural resources to developed countries. In order to maintain economic growth and high returns in the stock market, these emerging market companies must sell their products to foreigners as well as local consumption. Some analysts believe that the current pace of change is too slow, leading to the lack of attractiveness of emerging market stocks.

In a recent Walton knowledge online podcast, Marlow Gillan, a professor of management at Walton business school, said: "broadly speaking, what we see in many emerging economies is that the current growth pattern is drying up. All along, many emerging economies are export led. Therefore, we have seen that most emerging economies, such as China, India and Brazil, have made slow progress in exploring domestic demand. They must speed up the development of the domestic market to make up for the slowdown in exports. In the past few years, although they have made some progress, they are not enough to keep the economy developing continuously and rapidly. "

In the long run, Ms Wong believes that demographic factors, such as the relatively young population and the expanding middle class, make emerging markets attractive. In addition, she pointed out that it would be wrong to see all emerging markets as a large asset class. "The question now is not whether to participate in emerging markets, but rather to analyze specifically which emerging market, which industry and which stock?"

Today, according to historical standards, the price of the cheapest emerging market stocks is quite low, and the most expensive is quite high, she said. For example, in China, many consumer oriented companies, whose share prices have been quite high, are not attractive at present, most of them are H-shares listed in Hongkong. For westerners, buying H-shares is relatively convenient. As a result, many cautious investors want to buy H-shares from Western investors who buy emerging market stocks. Because they are cautious, they like to buy familiar stocks. However, she added that many of the consumer oriented A shares traded in mainland China, in fact, are very attractive at the current P / E ratio.