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Emerging Markets = Your Chance to Go Back in Time PDF Print E-mail
Written by Kalson Jang   
Monday, 16 May 2011 22:23

In today’s world wide economy, no portfolio is complete without exposure to Emerging Markets (“EM”).  For those of you who do not know what Emerging Markets are, they are financial markets which are not as developed as North American and European markets.  Emerging Markets include countries such as Brazil, India and China to name a few.  Although China is quickly becoming the largest economic superpower in the world, it is often classified as an Emerging Market due to its relative youth in the economic marketplace.

The reason you should consider investing in Emerging Markets can be seen clearly in your everyday life.  As I’m sure you have noticed, almost everything is made in EM now, as labour is much cheaper which allows companies to sell their products to us for less money.  With competition in developed markets more fierce than ever, the quest to find cheaper ways to produce products has led to more and more goods being produced in EM.  As a result of this, there has been a clear shift in wealth from the West to the East which has led to a profound shift in the demographics within EM.

Not too long ago, people living in Emerging Markets were either very rich or very poor with very few people falling under the category of “middle class”.  This is contrary to developed markets where most people fall under the category of middle class.  As a result of the huge amounts of money being sent from developed markets to EM to purchase goods and services, there is dramatic growth in the middle class population in EM.  As a result, people who previously could not afford things like condominiums, automobiles and luxury goods can now afford such things.  As a result, consumer demand in EM is growing at a rapid pace, while in North America, it grows very slowly.

As a result of all this, people in EM are moving from rural areas to city centers, which has resulted in an increased need for improved infrastructure.  Governments now have to build new roads, highways, subways, train networks and airports from scratch to accommodate the rapid increase in consumer demand for transportation.  This has led to billions of dollars in new infrastructure projects all over Emerging Market countries.  When you compare that to North America, you can see a huge difference.  In North America, every city already has an airport, subway, train network and highway.  We take these things for granted because they have existed for as long as we can remember, but in Emerging Markets, these developments are much newer and the amount of money being spent on infrastructure hasn’t been seen in developed markets for decades.

When I explain Emerging Markets to clients, I liken it to going back in time in North America.  When you look at stocks from 50-years ago, you often say to yourself “I wish I could’ve invested in those companies before they got big”.  With Emerging Markets, you are given that opportunity because the path they are following is very similar to the path followed by North America many decades ago.

The growing middle class and rapid growth of infrastructure in Emerging Markets are only 2 of many distinct trends which have led to the much faster growth of EM.  In 2010, Europe’s GDP grew at 1%, while G7 countries grew at 2.3%.  Compare this to Emerging Markets which grew at 6.3% and you can see why it’s important to invest there.  In addition to growing faster, Emerging Markets also have VERY LOW debt levels relative to developed economies.  In 2010, the debt levels of developed economies were just over 100% of their annual GDP.  On the other hand, debt levels in Emerging Markets were only about 40% of GDP, less than half the debt of developed economies.  This huge gap is predicted to get even wider as time goes on and developed economies continue to borrow money to satisfy their spending habits.

As a result of all this growth, many Emerging Markets have had to raise interest rates in order to keep their economies from overheating.  Brazil’s interest rate is over 8.5% and India’s is over 8%.  Compare that to North America where it is closer to 2.5% and you can see why investor money is flowing from West to East.  Why would you want to get 2.5% from a 5-year government bond in North America when you could get over 8% from a government bond in an EM country?

If after reading this, you realize that you really should be investing more money into Emerging Markets, what’s the next step?  The next step is speaking to a Financial Professional who can recommend you an Emerging Markets Equity or Bond fund that is right for you.  As I have access to every major Emerging Market Bond and Equity Fund available in Canada, I can make you a recommendation that is a perfect fit for you.  In fact, the Emerging Markets Equity fund I normally recommend has won the award for being the BEST Emerging Markets Equity Fund of the Year for 5 of the last 6 years, an impressive track record to say the least.

If you would like to find out more about Emerging Markets or would like to find out how they can help your portfolio, please contact me and I would be more than happy to help you answer any questions you may have.

Kalson Jang
Phone: 416-775-8777
E-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it