In a rough January worldwide, emerging markets — a popular sector for years — got socked, while developed markets lost much...
In a rough January worldwide, emerging markets — a popular sector for years — got socked, while developed markets lost much less.
The world’s 52 equity markets lost $5.2 trillion in the month, after gaining $7.2 trillion in 2007, says Standard & Poor’s senior index analyst Howard Silverblatt. Concerns about the U.S. economy are taking a toll overseas even though some experts think emerging markets are better able to withstand a slowdown now than in the past.
Emerging markets lost 12.44 percent in the month, while developed markets including the United States declined just 7.84 percent, according to Standard & Poor’s.
In the 12 months through Jan. 31, emerging markets — with growing middle classes fueling economic growth — gained 24.5 percent, while developed markets including the United States fell 0.35 percent.
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Still, investors pulled more money out of non-U.S. developed markets stock mutual funds in January — $4.7 billion — than emerging-markets funds, which had net outflows of $2.2 billion, according to Morningstar. Emerging-markets mutual funds and exchange-traded funds had seen strong inflows since 2003, according to TrimTabs.
Greater volatility may be in store for emerging markets after the recent drop, warns Merrill Lynch emerging-markets strategist Michael Hartnett.
“After big sell-offs in 2004, 2005 and 2006, it took five to seven months for emerging-market equities to regain old highs (we were spoiled last year),” Hartnett writes in a client note.
But he still thinks 2008 will be an up year. Hartnett says South Africa, Turkey, South Korea and China are oversold, and the newest emerging markets — such as Saudi Arabia and Kenya — are good bets.
Morgan Stanley analyst Richard Berner says emerging markets in Asia, Russia and the Middle East are less vulnerable to a U.S. slowdown than developed markets in Europe and Japan.