No safe haven in emerging markets

Emerging markets may look enticing over the long term, but too many of them are dependent on exports to countries going through a slowdown. The time is not right to be parking your money there.

"So much for emerging markets being the new safe havens," says Economist.com. Last year many analysts noted that emerging market fundamentals had greatly improved, with many boasting lower inflation and debt, plentiful foreign exchange reserves and current-account surpluses, making them more resilient to financial crises. Emerging middle classes were at the same time beefing up domestic demand and corporate profitability had increased. Indeed, Bloomberg noted last week that emerging-market return on equity has reached 16.8%, the highest since it began tracking this data in 2003.

All this makes emerging markets look enticing over the long term. But for now, the idea that developing markets were "immunised against financial turmoil and recession" in America and elsewhere in the industrialised world, says Rosemary Righter in The Times, has been "shelved". Emerging-market stocks have fallen further than their developed counterparts, with the MSCI Emerging Markets index (after last week's bounce induced by the news of the US bail-out) down 36% from last October's record and off by around 14% this month. China had slipped by 65% from its 2007 apex by last week. The latest survey of global fund managers by Merrill Lynch found their position in emerging-market stocks was the smallest since 2001. Developed-world stocks are down by around 25% peak-to-trough.

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