Emerging Markets Fund: How to Buy the Recovery

Singapore, 12 July, 2009. As Wall Street shows signs of recovery, many investors are watching emerging markets. They could very well prove to be the markets to invest in as we pull out of the economic crisis.

Some analysts believe it will be the developing nations that will lead the way to recovery, unlike in past recessions when the US, Europe, and Japan paved the way.[br]

Singapore, 12 July, 2009. As Wall Street shows signs of recovery, many investors are watching emerging markets. They could very well prove to be the markets to invest in as we pull out of the economic crisis.

Some analysts believe it will be the developing nations that will lead the way to recovery, unlike in past recessions when the US, Europe, and Japan paved the way.[br]

It used to be thought that the big growing economies, most notably China, India, and Brazil relied so much on the US, Japan, and Europe that until these major economies recovered, the emerging markets would struggle.

Many economists believe in decoupling, or the concept that these developing economies have such strong domestic demand that they need not rely on exports to the US or Europe. They believe these nations’ economies are strong and deep enough that they will be protected from a US recession, at least to some degree.

Some signs of decoupling could be apparent: The S&P 500 is only up 1.7% over the past year, while the iShares MSCI Emerging Markets Index has gained a phenomenal 29.4% in the same period.

This presents attractive opportunities for investing in ETFs (exchange-traded funds). There are a variety of ETFs on the market with different risk and exposure levels.

Broad ETFs allow investors to avoid some of the volatility and offer some degree of insulation from putting money in too narrow an industry or country.[br]

Bundled ETFs like the Vanguard FTSE All-World ex-U.S. provide just 22.7% ETF exposure, with the rest in markets like Canada, France, and Japan.

There are others that spread your investment all around the world, such as the iShares MSCI Emerging Markets ETC. It allocates 314 components around almost 25 countries. Another is PowerShares FTSE RAFI Emerging Markets Portfolio. It invests in Turkey, Thailand, China, Taiwan, and others.

There has recently been much interest in BRIC – Brazil, Russia, India, and China. The iShares MCSI BRIC Index, Claymore/BNY Mellon BRIC, and SPDR S&P BRIC 40 are all BRIC funds.

Depending on where in the emerging markets you anticipate growth, you can even invest in individual countries through ETFs. And by being an ETF you can still expect diversification, though many of them have a specific focus.

WisdomTree India Earnings Fund, SPDR S&P China, and iShares MSCI Chile have all performed well since the March 9 lows.

Hiroko Mirafiori, EconomyWatch.com