Preparing for the Coming Emerging Markets Rally

A rising number of strategists and asset managers predict that emerging markets will outperform in the next few years. But how much money should an investor allocate to this volatile group, and how best to participate?  A good starting point is emerging markets’ portion of the world’s equity capitalization—about 13%. But because investors tend to have a home-country bias that prevents them from venturing too far abroad and some markets have lost value owing to falling currencies, the 13% figure may be on the low side, particularly when you consider some of the new or expanding members of the market.

http://tinyurl.com/pyqu9t6

Gulf States Weather The Emerging Market Storm

Capital outflows from the Gulf states have reached around $780m (£484.7m, €614.5m) since May last year, far less than the amount of money that has left other emerging markets, according to a new report by the International Monetary Fund.

http://tinyurl.com/lmda3j2

Emerging Markets: Separating The Sheep And The Goats

Investors who thought emerging markets were the bee’s knees have suffered agonizing reappraisals. After several years of Federal Reserve-fueled rallies, less developed markets are now in the doldrums. Emerging economies depend on exports for growth. That means Europe and North America. Unfortunately, as long as we are still deleveraging, the export-growth model is no longer viable.  For investors it’s important to separate well-managed emerging economies, the Sheep, from the poorly run economies, the Goats. My list of Sheep–South Korea, Malaysia, Taiwan and the Philippines–have current account surpluses, which measure the excess of domestic saving over domestic investment. So they are exporting that difference, which gives them the wherewithal to fund any outflows of hot money, as have occurred in the past year.

http://tinyurl.com/pjaop5g

-Igor P Purlantov

Central Banks Want to Hold Emerging-Market Currencies

Central banks want to add Chinese yuan and other emerging market currencies to their emergency cash stocks, according to a new International Monetary Fund survey, a change that could redefine the world’s reserve currencies.

http://tinyurl.com/d8rjx6m