Grim analysis on emerging markets

Investors who turn to emerging markets as a source of better returns may be sadly disappointed, according to industry experts who have addressed a Reuters Global Wealth Management Summit.

The experts said that emerging markets, which had suffered a full-blown crisis just a decade ago, were the most vulnerable to prolonged pessimism because investors had already cut exposure to more liquid markets.

Addressing the Singapore summit, the head of Asia Pacific private banking for Credit Suisse, Marcel Kreis, said the one thing that made the emerging markets a lot more volatile than the US or Europe was that they were thinly capitalised.

“Everyone is going to be reminded again that it is easy to buy. It’s a hell of a lot more difficult sell,” Kreis said. “And it is one of the reasons why we stay a little bit more cautious on direct investments in emerging markets.”

In her address to the Reuters summit, the Asia-Pacific head of portfolio counselling for Citi Private Bank, Jennifer Tay, said corporate failures were also likely to increase across Asia as the global financial crisis took hold and impact on access to credit to drive weaker firms into insolvency.

She said this was particularly likely to be the case in countries where political uncertainty was high.

Tay said the firm was urging clients to favour defensive sectors such as health care, utilities and infrastructure.