Emerging-market Investing: Will the Roller Coaster Ride Continue?

investing-emerging-markets-1024x440Stocks in emerging markets have had a tough time this year, plunging during the first six months and leaving many investors shaken as heart-stopping drops punctuated a post-summer recovery.

Some investing pros have argued the best times for emerging-market investing are over, citing factors like the inevitable end of the Federal Reserve’s bond-buying program and the sluggish progress in converting EM countries like India, China and Brazil to consumer-driven economies.

But many experts at Wharton and elsewhere say the obituaries are premature. The biggest mistakes, they argue, are to lump the diverse EM economies into one and to take the short-term view. Many say EM stocks, chosen carefully, are now quite attractive, though EM bonds, many concede, are indeed risky.

“The way to get higher returns is to turn to the emerging markets,” says Wharton finance professor Richard Marston, speaking of equities. The simple reason, he says: The EM countries have a lot more room to grow than the developed ones.

In fact, many EM stocks are trading at extremely attractive price-to-earnings multiples of less than 10 to 1, adds associate Amy Huang, who is responsible for emerging and frontier-market investing at Morgan Creek Capital Management LLC, an investment adviser and management firm for institutions and wealthy families.

“Right now, it is a very good time to buy emerging markets, given that the [Standard & Poor’s 500] is at an all-time high,” Huang says, cautioning that events could change her view, which, she adds, does not necessarily reflect her firm’s. Huang is especially keen on the “frontier markets (FM),” composed of countries like Vietnam, Bangladesh and Saudi Arabia, that are less developed than the well-known EM countries like China, India and Russia.

“We view the frontier markets as emerging markets 2.0,” Huang says. “If you liked the emerging markets 10 years ago, you will like frontier markets today.”

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Originally Published November, 20, 2013