Emerging Market Wobbles

16th September 2013

Emerging and developed markets are moving apart. Emerging markets have had a parting of the ways from their developed counterparts since spring.

A variety of reasons have been suggested, including:

• The increased signs of recovery in the developed markets, with even the Eurozone managing to record growth in the second quarter. This has raised the relative appeal of developing markets.
• Concerns about the effect of a reduction of US quantitative easing (QE) on emerging markets, which have been major beneficiaries of the cheap money the Federal Reserve has been pumping out.
• Worries about the future of the Chinese economy. The days of double digit annual growth are over and there are doubts that even the current target of 7.5% will be achieved. At the same time China’s reliance upon credit is being called into question: some estimates put China’s total debt – government and personal – at nearly twice the size of its economy.
• Political upheaval is growing. Turkey, Brazil and Russia have all seen street protests at governments that some of their population feel is not spreading the benefits of economic progress fairly enough.
• Some emerging market currencies have taken a battering. The Indian Rupee has been among the worst hit, repeatedly falling to new lows against the US dollar.

Some brave contrarian investors have started to see buying opportunities appear in emerging markets as prices have fallen. However, for other investors the risk of continued declines is too great.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.