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Bob Carey
Chief Market Strategist
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  Peeling Back the Onion for a Closer Look at Emerging Markets Equities
Posted Under: International-Global
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View from the Observation Deck

  1. While some attention has been garnered by Eastern Europe and Frontier Markets over the past decade, they pale in comparison to the BRIC countries.
  2. One can own stocks from emerging countries in a number of ways, but owning a diversified portfolio is probably the most common for a typical investor.  
  3. Now that these markets have had the chance to mature to some extent, investors can better assess their options, including targeting a country or region.
  4. For U.S. investors, the one common factor for most foreign investments is the value of the U.S. dollar. A weakening dollar tends to boost the performance of investments denominated in foreign currencies and vice versa.
  5. As it pertains to the chart above (10/01-10/11), the U.S. dollar declined 33.7% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY).
  6. The returns on emerging markets equities were tempered in the last five years due to the subprime mortgage-induced global credit crisis in 2008.
  7. Over the past two years, several key central banks (Brazil, China & India) have tightened monetary policy to curb inflation by raising their benchmark lending rates multiple times.
  8. The International Monetary Fund is forecasting GDP growth rates of 6% for emerging economies in 2012, compared to 2% for developed nations.
  9. For the investor with a longer time horizon, emerging markets equities are worth consideration at current levels, in our opinion. 
  10. The current P/E ratio on the MSCI Emerging Markets Index is 10.87, the lowest (excluding 2008 credit shock) since 2005, according to data from Bloomberg.

Posted on Thursday, November 17, 2011 @ 4:44 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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