Emerging markets outlook strong

2007 was another strong year for emerging markets, remaining relatively unscathed by the sub-prime crisis that is currently causing havoc in the market.

Emerging markets registered a 40 per cent gain this year, making it almost a 400 per cent increase in returns for the past five years, according to executive chairman, Templeton Asset Management, Dr Mark Mobius.

“Investors remained nervous due to widespread concerns over the impact on global economy of the credit crisis in the US. This uncertainty is expected to continue in the near term or at least until the full extent of the sub-prime becomes clear,” Mobius said.

“Thus far, however, the sub-prime issue in the US has had a limited impact on emerging markets.”

Regionally, China’s GDP growth eased to 11.5 per cent year over year (YOY) in the third quarter of 2007, as domestic demand and trade remained key drivers of growth.

According to Mobius, the Chinese government continued to implement tightening measures to curb investment growth during the fourth quarter, including stricter approval procedures for new fixed asset investment.

The Brazilian economy grew at its fastest pace in more than three years in the third quarter of 2007, with GDP growing 5.7 per cent YOY as lower interest rates drove corporate investment and consumer expenditure. While Russia’s GDP grew 7.6 per cent YOY, with the construction, manufacturing and trade sectors driving economic growth.

While the long-term outlook for emerging markets remains strong, it will not remain completely immune from the sub-prime crisis, as investors should expect some volatility in the short term.

“We could even see corrections in equity markets, including emerging markets, if global economic growth slows. The good news is that bear markets tend to be much shorter in duration than bull markets… This is why one must invest with a long-term view,” he said.

According to Mobius, emerging markets cannot be insulated from the sub-prime crisis since a significant portion of their exports is still to the US.

“Going forward, we continue to take a long-term view to investing in emerging markets … as the underlying fundamentals of emerging markets remain intact and prospects for the future good.”