New Delhi: This was a lost decade for the US stock market. But for much of developing world, it was the Roaring ’00s—a period of soaring markets and breakneck investment that left even some bulls wondering if the good times can last.
While the broad US market lost about one-fifth of its value in the last 10 years, emerging markets such as Brazil, Russia, China and India powered ahead with gains in the double or even triple digits.
The numbers are staggering. On the Ukraine’s PFTS Stock Exchange—a Wild East of investing that did not even exist until 1997—shares soared more than 1,350% over the last decade. In Peru, stocks jumped more than 660%. Here in India, the Sensex leaped more than 240%.
To believers, those heady gains underscore profound shifts taking place in the global economy, where investment dollars, euros and yen whiz across borders and time zones with the stroke of a computer key. As many Americans wait for an economic recovery, money is pouring into the fast-growing economies of Asia and Latin America, as well as into oil-rich Russia and the former Soviet bloc.
“What we’re living through now is something of epic proportions,” said Allan Conway, the head of emerging markets equities at Schroders, the big money management company in London. He likened the economic rise of nations such as Brazil, Russia, India and China—the so-called Bric countries—to that of postwar Japan.
Amid all this euphoria, even some longtime bulls wonder if investors are getting a bit carried away. Emerging markets have a history of giddy booms and crushing busts dating back to the 19th century. They collapsed spectacularly in 1997, as a chain reaction of currency devaluations, bankruptcies and recessions rocked East Asia. In 1998, the Russian market plunged more than 80% after the country defaulted on its debts.
More recently, emerging markets tanked with the rest of the world in 2008, after shell-shocked money managers pulled cash from anywhere that seemed risky. But they were a bright spot in 2009—the MSCI Emerging Markets index increased 73% in 2009, compared with a 25% jump in the S&P 500 index.
As long-term investments go, emerging markets seem to have a lot going for them. On average, developing countries have less sovereign, corporate and household debt than developed countries. Their economies are also growing faster than industrialized ones. Merrill Lynch predicts that emerging market economies will grow 6.3% next year, while the global economy expands by 4.4%.
Emerging markets are eclipsing their developed peers in other ways as well. Imports to the Bric nations are likely to surpass imports to the US for the first time ever in 2009, according to Morgan Stanley.
For the moment, the developing world is the engine of global growth. Emerging markets accounted for virtually all of the year’s growth in global output, because developed economies shrank or were flat. Even if developed countries recover completely in 2010, emerging economies will account for 70-75% of the growth in global output “for the foreseeable future”, said Conway of Schroders.
Developing nations are also assuming a bigger role in the world economy. Morgan Stanley predicts that developing countries, including those in West Asia, will account for 36% of total global gross domestic product in 2010, up from 21% in 1999.
All of this is a big lure to investors. Funds focused on equities in emerging markets attracted a record $75.4 billion this year, far surpassing their previous high of $54 billion in 2007, according to EPFR Global, which tracks fund flows.
Even after that influx, emerging markets still account for only a small fraction of investment portfolios in US and Europe, the world’s money management centres. Less than 3% of assets managed by US fund managers are invested in emerging markets. That number could double in the next five years, some investment experts say.
©2009/THE NEW YORK TIMES