Emerging markets: wait for a dip

published 20 February 2006

Emerging markets were the place to be in 2005. They returned on average 32.5%, which, given that developed markets made investors just over 10%, was pretty impressive stuff. But was it too much too fast?

Possibly, Standard & Poor's analyst Alison Cratchley told MyFinances.co.uk. This is the fifth year running that emerging markets have done better than developed ones and there is now real concern that several markets are both overpriced and due a correction.

No one is suggesting that emerging economies aren't still growing at speed. They are, says Hugh Young, head of equities at Aberdeen Asset Management, but "strong growth does not necessarily translate into where you should invest money."

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Note, for example, that stocks in India now trade on a very high p/e of nearly 18 times. That's too high a level to buy in at, and a 10%-20% fall should be expected.

Still, while they may be pricey in the short term, on a five to ten year outlook their fast growth, dynamic economies and diminishing reliance on the US economy for trade mean that "emerging markets offer the biggest opportunities" anywhere, Mark Mobius, president of Templeton Emerging Markets Inc, told George Zhibin Gu in the Asia Times.

Annunziata was a deputy editor at MoneyWeek, covering financial markets, politics, economics and comment pieces. She then went on to the Daily Telegraph as a lead writer where she wrote a column on young women’s financial issues. She was briefly a member of the European Parliament for the East Midlands region in the UK as part of the Conservative Party. Annunziata continues to write as a freelance journalist.