Last week I did a global portfolio and the thing that jumps out when you look at that is — you had to be invested in the emerging markets in the last five years to make any kind of significant gain.
It doesn’t look like this is a one off thing and I feel that several people are coming to that conclusion independently, and last week, — I read a few things that were related to this, and were perspectives on this from different sides. By different sides, — I mean perspectives from people who are going to invest this money, people who facilitate this investment, and finally the recipients of this investment.
I read DRs post last week, and he said that about 20% of his portfolio is in emerging markets, a number he thinks should grow in the coming years.
Patrick J who left the original comment suggested a similar ratio, and I am sure many more are thinking along these lines.
Of course, if money is going to go to emerging markets, those emerging markets need to place some controls on these inflows, or else they risk their markets getting overheated, and local currencies gain in value.
With that in mind Brazil imposed a two percent tax on inflows in its stock market. There have been some concerns raised in India about the inflows and Ajay Shah had this great piece comparing the capital inflows in India over the last decade. His analysis shows that India has had greater inflows in the past, and current levels are not high enough to be alarming.
Funny how one side wants to get in, and the other one wants to make it hard for them to do so.
If people want to get in on something, that is a great opportunity for ETFs and mutual funds. They smell that big opportunity and are going to bring in more products to satisfy such investor demand in the future.
The fact that I read all these things in quick succession may mean that I am making too much out of it, but I do feel that this is a fair indication on how the next few years will be.
Investors in the developed world are going to look for more and more avenues of investing in emerging economies and fund houses are going to come up with more and more ways to satisfy the demand. The emerging countries will of course try to control this and make sure they are not too exposed to the vagaries of international finance and hot money.
It would be interesting to see how this trend develops and plays out in the next few years.