Emerging Markets: Leading or Following?
Source: http://feedproxy.google.com/~r/qvmgroup/yrMF/~3/lW5YDGlziU0/5229Posted on Saturday, June 27th, 2009 | In Developed Markets, Emerging Markets, Market Commentary
Are emerging markets leading the developed markets forward, or following their lead?
The answer may depend on when you start the observation.
Two key asset classes are stocks and bonds. Let’s look at total stocks and sovereign bonds for each of the United States, the non-US developed markets, and the emerging markets to see how they are doing.
The sovereign bonds in the non-US developed markets are denominated in local currencies, while the emerging market sovereign bonds are denominated in US Dollars.
This daily chart beginning March 6, 2009 shows emerging market stocks and sovereign bonds handily outperforming their counterparts in the United States and the non-US developed markets.
click images to enlarge
On the other hand, this 1-year weekly chart shows emerging markets stocks and bonds still underperforming US market and just catching up to the non-US developed markets.
Prevailing thought is that emerging markets have a brighter growth and profits future than the US and other developed markets. Certainly if the recent the rates of change continue, emerging markets will be the stars, although they could be ahead of themselves. It may depend on how economically coupled or decoupled they are with respect to the developed markets. The data on that is mixed.
China, for example (according to the World Bank’s June report) had YTD year-over-year industrial production growth of positive 7.4%, but YTD year-over-year export volume growth of negative 22.7%. Either domestic Chinese consumption (about 1/3 of their economy versus about 2/3 of the US economy) rose tremendously, or China has experienced inventory build-up. If inventory and not sales has explained their production, that is unsustainable; and the related run up in copper and oil may be equally unsustainable.
Those short-term considerations aside, we are on the side that favors emerging markets for long-term gains – for those who can handle roller coaster rides.
Securities mentioned in this article: VTI, VEA, VWO, BND, BWX, EMB
Disclosure: We have owned all of these securities from time-to-time in managed accounts.
Richard Shaw
QVM Group LLC
Last 5 posts by Richard Shaw
- Quality Individual U.S. Companies - November 7th, 2009
- “China Up / U.S. Down” Theme Checkup - November 2nd, 2009
- Healthcare Co. Profits Sensitivity to Obamacare - October 29th, 2009
- Less Than Good News from Germany - October 25th, 2009
- U.S. Budget Debt History and Projections - October 24th, 2009
China, Developed Markets, Emerging Markets, International Bank for Reconstruction and Development, Market Commentary, Oil, QVM Group LLC, Richard Shaw, United States
 About Richard Shaw (http://www.QVMgroup.com)
Richard is a principal of QVM Group LLC, a fee-based investment advisor based in Connecticut with clients across the country. He provides investment coaching to "do-it-yourself" investors, and manages portfolios for those who prefer not to make their own decisions. His investment approach is based on value, asset allocation, benchmarking, expense control, risk management, customizing portfolios to each client's specific circumstances, and regular communication about strategy and performance. The QVM Group team also provides municipal refinance services, strategic business planning and financial analysis service for new ventures, private acquisition analysis, and custom investment research. Richard's extensive experience, includes serving on the Board of Directors of Aberdeen Asset Management PLC (London Stock Exchange: ADN), membership on the Board of Directors of Phoenix Investment Counsel (renamed Virtus Investment Advisors), a U.S. pension manager and investment advisor to the Phoenix Funds (renamed Virtus Funds), as well as serving as Managing Director of a series of offshore investment funds based in Luxembourg. He has led institutional asset management sales and had overall responsibility for management of a U.S. mutual funds broker-dealer. He was a charter investor and member of the Board of Directors of several internet companies, including Lending Tree prior to its IPO. He is a graduate of Dartmouth College. QVM Group LLC is a Registered Investment Advisor. Visit the QVM Group website http://www.qvmgroup.com/QVMinvest/ |
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