7661 emerging markets are for real year 2010 month 12 start 1


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Emerging Markets Are For Real

Written by Dave Nadig

December 01, 2010

Of course, emerging markets bets have been riskier. Here’s a chart of the same two indexes’ 30-day volatility over the last 10 year:

Both indexes have had periods of substantial volatility and, indeed, when the you-know-what really hits the fan, emerging markets do spike higher. But the day-to-day expectation of the two indexes is remarkably similar.

But none of these charts is what really drives investors. After all, most investors focus on performance.

The correlation here is easy to see, as is the spike in volatility, which drove emerging markets down hard during the financial crisis. However, they also recovered faster, more violently and to better effect.

Clearly the pattern of returns here is substantially different, and different is what investors are looking for. The 300 percent returns during the “lost decade” don’t hurt either—the S&P is up just 8 percent over this same time frame.

The premise of emerging markets isn’t lazy. Like all indexes, emerging markets indexes are simply a pooling shortcut, allowing investors to express an opinion without picking stocks. In this case, that opinion is “developed economies are mired with difficulties, less-developed economies are the place to be.”

And let’s be honest, those investors have been right.



The views expressed by those blogging are for informational purposes only and should not be construed as a recommendation for any security.

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