Do Emerging Markets Offer Better Growth Opportunities for Investors? Jeremy Gates Looks at the Nation's Money Issues and Reports on Whether Emerging Markets Can Fatten Your Savings
Byline: Jeremy Gates
FOR four difficult years, while some of our biggest banks entered the sick bay and the eurozone became a mess too complex to unscramble, far-flung corners of the world have seemed the only place where savers and investors can grow their wealth.
On several counts, the emerging economies - notably the "Bric" quartet of Brazil, Russia, India and China - seem best placed to kick-start global growth.
They have cheap labour and raw materials in abundance, young and fast-growing populations, relatively low debt levels compared with Europe and the US, minimal welfare costs, and abundant demand from consumers chasing new cars, white goods and electrical gizmos.
Chuck in the telecoms jobs switched to India and it's hardly surprising that so many people are tempted to move money from building society accounts to pursue fatter returns abroad.
Manila's stock market, for instance, is up 25% since January; electronic exports are booming, the Philippines government has built massive reserves, and foreign investors have spent more than a pounds 1bn on shares since January, reckons Bloomberg.
In the last year, emerging market funds, as a sector, are down around 12%, but many investors are happy to take the long view, says Alliance Trust Savings, which promises low charges for savers making lump sum or regular payments into funds on its i.nvest platform.
Alliance Trust Savings marketing director Garry Mcluckie said: "Our top 20 list of funds purchased in the first half of 2012 highlights the diversity of investment options, from low-cost trackers to funds which give exposure to bonds, emerging markets, North America or Asia."
Aberdeen's Emerging Markets fund takes fifth place in the Alliance Trust Savings' top 20; Asia is prominent too, and Vanguard, a low-cost operator, takes 19th spot with its Emerging Markets Stock Index fund.
Some of the top 20 funds have an annual management charge of only 0.25%, with a maximum 1.50%. Low charges can make a big difference to a 10 to 20-year savings plan.
Many investors appear to have lost their nerve: Ashmore, a fund manager specialising in emerging markets, saw its share price plunge after admitting investors are currently withdrawing more money than they are putting in.
"It is all going a bit Pete Tong in the emerging world," admits Rob Pemberton, investment director at wealth manager HFM Columbus.
"Take India, a year ago it was flying but since then GDP growth has fallen from its near double-digit trend down to 5% and the rupee has fallen by 25% against major currencies.
"Higher commodity prices have hurt, the budget deficit is 10% of GDP and inflation has rocked back up to 7%.
"It is not entirely happy camping in Brazil either, which has recently ousted the UK as the 6th largest global economy. A high inflation rate and a commodity-based economy reliant on Chinese demand are not the best recipe for success in these straitened times "Russia might be more problematic still. It is hugely dependent on commodity prices, but capital flight and a lack of competitiveness means Russia needs an oil price well in excess of $110 to have any attraction to investors." But some experts think emerging markets fortunes could turn again eventually.
Many will be wondering if this is the time to buy into the pounds 485m Fidelity China Special Situations fund, run by Anthony Bolton. It is down around 27% on the pounds 1 launch price set in April 2010, though the great man remains confident that he will yet turn things around.
Investors confident that Bolton will bounce back can set up a regular savings plan through Fidelity, with no initial charge and a small annual management charge.
Emerging markets can be a winner, says Tony Ahearne, director at investment research company Moneyspider.com.
"Investors who have held their nerve and retained their emerging markets funds despite the ups and downs of global stock markets have been well rewarded, if they chose the right funds," he says. …