Emerging markets still a good bet despite recent volatility

Long-term outlook remains strong but be careful, investors told

If countries were World Cup soccer teams, then the global emerging markets of Egypt, Colombia and Jordan were the star performers of the past year. Emerging market economies are outpacing developed countries in the global economic environment and may continue to do so for some time, according to Richard Titherington, JPMorgan Asset Management managing director (head of global emerging markets). This is despite the recent market volatility.

Egypt was first among the top 10 emerging markets last year with a massive 162 per cent gain followed by Colombia and Jordan, which also posted impressive performances. The performances have ridden on ample global liquidity and a strong macroeconomic environment boosted by investor confidence. A weakening US dollar against most major emerging markets currencies has added a further fillip to performance.

For Mr Titherington this comes as no surprise. 'Certainly, these markets have performed strongly in recent years. Between 2003 and last year, global emerging markets have seen the most extraordinary period of out-performance that the stock markets of the developing economies have ever seen.'

The Morgan Stanley Capital International (MSCI) Emerging Market index has increased 142 per cent since 2002, outperforming significantly the 42 per cent gain on the S&P500 or the 62 per cent increase in the MSCI AC World index over the same period.

Because companies in the emerging markets are less mature than in the developed world, fund managers such as Mr Titherington believe there is potential to make significant profits during the catch-up phase. He says strong demand for commodities is one reason emerging markets are doing well. Much of the world's output of commodities is in emerging markets, so the strong demand subsequently feeds back into profits.

'During the last five years we have seen a big change for the better in GEM countries' key macro-economic indicators. Improvements have been made in corporate balance sheets, achieved through earnings growth and debt reduction. Many of the emerging market countries have experienced an enhanced regulatory environment, improved corporate governance and greater liquidity.'