A Bigger Risk Than Emerging Markets: Staying Out

by Dave

WSJ.com

“Without question, we have steadily increased our exposure to emerging markets over the last couple years, and I think that’s a trend that continues,” said Bill Quinn, executive chairman of American Beacon Advisors, which manages about $65 billion in pension assets and short-term cash assets on behalf of its affiliate, American Airlines, and outside clients. “Most [US] pension funds have maybe five to ten percent in emerging markets, I bet in 10 years that number is closer to thirty per cent.”

Mostly solid financial systems and fast-growing domestic consumer markets helped many larger developing economies such as China, India, Brazil and Indonesia post impressive growth rates even in the midst of the global recession. That means these economies will make up a larger portion of the global pie and economists expect today’s emerging markets to account for half of global gross domestic product in a decade or so, from about a third currently.

That is pushing institutional investors to increase their positioning in developing-markets stocks, the performance of which has been nothing but encouraging in an otherwise tough year for the global economy. The MSCI Emerging Markets index has soared 68% this year, comparing nicely with the 24% advance for the Standard & Poor’s 500-share index. Some of the hottest [2009] national markets have been in Russia and Argentina, where benchmarks have more than doubled. India’s Sensex index is up 79%, and the Shanghai Composite is up 69%. Brazil’s Bovespa is up 80%.

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