U.S. investors go gaga for emerging markets funds

ppteam

Emerging markets are on fire, but that's not always a good thing.

Emerging markets are stock exchanges in countries that aren't large enough to be called developed markets. Examples: Brazil, India, China and Russia. The average emerging markets mutual fund soared 15.3% this year through October, vs. 7.9% for the Standard & Poor's 500, including reinvested dividends.

Some individual markets have posted enormous gains this year, says MSCI, which tracks global markets:

•Colombia, up 57.9%.

•Thailand, up 45.2%.

•Turkey, up 35.6%.

Those big gains have attracted torrents of new money. Investors have poured a net $43.9 billion into emerging markets funds this year through Oct. 27, according to Lipper.

The rush to emerging markets isn't limited to the U.S. Investors worldwide have poured $71.2 billion into emerging markets stock funds, according to EPFR, a Boston company that tracks money flows. "It's pretty impressive. They're the most popular asset class," says Alec Young, equity strategist for S&P.

The passion for emerging markets isn't limited to stocks.

Emerging markets bond funds have been steaming, too, jumping 15.2% the same period, Lipper says. In contrast, the average U.S. government bond fund is up 8.5%.

EPFR estimates that investors worldwide have poured $46.6 billion into emerging markets bond funds.

But is this a good thing? S&P's Young thinks the appetite for emerging markets has been driven by low interest rates in the developed world, especially the U.S. That craving has been redoubled in anticipation of the Federal Reserve pushing rates down further to stave off deflation.

In the meantime, some emerging nations have been raising interest rates. India's central bank, for example, raised interest rates Tuesday — the sixth time this year.

Emerging markets stocks sell for an average 11.3 times estimated 2011 earnings, Young says, vs. 12.6 times earnings for the S&P 500. (The price-to-earnings ratio shows how expensive or cheap stocks are vs. earnings. Lower is cheaper.) His verdict: Emerging markets stocks are "not dirt cheap, but not unreasonable."

Others are worried about the torrents of new cash. "Buy high, sell low has been the classic American approach to Asian stocks," says Mark Headley, portfolio manager at Matthews International.

"Expectations seem to be very high," he says. "But problems and risks remain significant."

colderdown

回复 1# ppteam

Sell US and long EM still make sense.