Amid global economic instability and uncertainty, investors seem to be reassured by the news that emerging markets promise to pay decent dividends. According to UBS, 300 major non-financial companies (MSCI Emerging Markets Index) will pay their shareholders up to $ 52 bn in 2012. These are companies from China, Russia, India, Malaysia, Ukraine, Nigeria, Mexico etc.
While the EU keeps suffering from the most severe crisis since WWII and PIIGS are pushing the eurozone closer towards collapse, investors have invested in emerging markets and are ready to gather a rich harvest.
Do emerging markets still look promising in terms of investment opportunities?
Emerging Markets
According to Eugene Olkhovsky, ’s leading expert from Canada, some experts support those how invest in emerging markets. In particular, the experts from Emerging Market High Dividend and UBS assume that it is necessary to look for high-yield stocks in countries with emerging economies.
Indeed, this year’s total sum of dividends paid by such companies may reach $52 bn against last year’s $48,9 bn. But does it really mean that we should invest all our money in emerging markets?
According to Mr. Olkhovsky, the dividend growth hasn’t still push up the value of those dividend stocks.
MSCI Emerging Markets has gained 3.1% this year, thereby outpacing S&P 500 by 2,2%. However, it is still lagging behind European Stoxx 600 by 5,2%.
Emerging markets are evolving. However, this speaks in favor of their maturity rather than higher-yield stock markets. Investors won’t get much higher dividends as compared to those paid by European companies (no more than 1,5-2 times higher)
Those favorable conditions for the markets emerged mainly due to the eurozone debt crisis.
Experts On Investments In Emerging Market Stocks
According to , the transition to emerging markets should be gradual. Moreover, we should never forget about diversification, which means we shouldn’t invest all our money in more profitable but slightly riskier markets (like emerging ones).
In essence, portfolio investment in developed markets is determined by the following factors:
1. No local production risks
2. Absence of necessity to constantly monitor your investments
3. Transparent taxation and regulation
4. Acceptable yield
The chart below, courtesy of , reflects the long-term yields of the “developed” stock indexes:
Now let’s look at emerging markets. The advantages of investing in them are:
1. Higher yield (nearly twice as high as the one offered by developed markets)
2. Acceptable risks (comparable to those seen in developed markets)
The chart below, courtesy of , reflects the long-term yields of the “emerging” stock indexes:
Moreover, if to compare the nature of the decline seen in both emerging and developed markets during the latest global crisis (2008), we can conclude that investing in emerging markets looks preferable at this point.
Amid economic slowdown in emerging economies, their markets feel more pressure. The charts above show that these markets have been mainly bearish since 2011. It is quite natural if to consider the fact that they start feeling negative processes in the global economy much earlier than developed markets. At this point, we can see that the recent downtrend was suspended around last year’s bottom (October 2011). Therefore, there is high probability that on entering the zone, major speculators may well start buying heavily, anticipating a major rally (up to 40%).
Emerging markets look interesting after crises as they are faster to drop and to recover.
