After the Plunge: Emerging Markets Beckon the Daring

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Take heart, emerging-market investors.

From out of the haze that hangs over Asian currencies and stock markets shines an ancient Chinese truism: "Big chaos brings big opportunities."

The Hong Kong stock market on consecutive days last week swooned and then zoomed in record proportions. The whipsawing is the market turmoil that, since July, has spread from Bangkok, through East Asia, then to Wall Street and much of the globe. Stocks of many blue-chip companies in East Asia - the world's most dynamic region - now trade at fire-sale prices. Indeed, by one measure, investing in emerging markets shows exceptional promise. Because stocks gauge expectations more than current economic performance, investors profit by identifying markets that will exceed expectations. In many emerging markets, investor expectations are depressed while underlying economies remain fundamentally strong. The World Bank estimates that in the next decade, East Asia will grow an average 7.6 percent annually, more than double the pace of developed economies. That spells potential for investors. "One of the most important things to keep in mind about investing is, it's not about performance but about identifying opportunities where low expectations will encounter remarkably good surprises," says Bill Whitt, international funds analyst at Morningstar, the Chicago mutual-fund rating service. But how does an investor find the opportunities, and the courage to seize them? For some analysts, the answer is simple: "Don't even waste your time." "I wouldn't invest in East Asia until governments there get their arms around their problems and get over their growing pains," says Alfred Goldman, market strategist at A.G. Edwards in St. Louis. Instead, investors could profit, with less risk, by investing in strong US multinational corporations, says James Coons, chief economist at Huntington National Bank in Columbus, Ohio. To some analysts, though, now is an ideal time to ease into slumped emerging markets. "Even if markets go down some more, you're still buying equities at a very good value. It's impossible to buy at the absolute bottom," Mr. Whitt says. "Investors who sit down, buckle their seat belts, and go along for a long-term ride in these countries should eventually come out with a good profit," says Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N. …


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