Sunday, February 20, 2011

The Emerging Market Myth

Economists and investment gurus seem never to tire of pointing out the incredible growth of the economies of 'emerging' countries. China is the obvious prime example. So investors often hear how profitable it is to invest in said markets. But reality is that the stock market investment performance of these countries is often much less rewarding than many would think. For one, everyone wishes a chance to invest in such 'promising' economies and we tend to pay too high a price for such investments. For years China's economy has hauled in not only large trade surpluses because of ever growing export markets, but also investors and foreign companies have thrown investment capital at these countries in an astonishing amounts.

As a diversified investor you would also like to participate in the nearly never ending profit streams from these countries. But think again! First ask yourself why countries like China are at an ever increasing rate buying up resources? First in Africa, then in S. America and now in Canada. Well, here is my investment record (with the actual investments reduced to $1000) for some ETF funds including the one based on the MSCI Asia index excluding Japan going back to March 2007 or close to 4 years.

My return on stock markets in Pacific Countries including India and China was 3.54% since March 2007. Wow! Now Japan, which was not included in this ETF, has had an even poorer return -3.55% - not surprising. Let's compare that to the return of Gold over the same period of time:
Oops! That is a return of 22.52% Slightly better J "Duuhh! Everyone knows gold is unbeatable." you might say. Right you are, maybe we should compare it to a stale G7 economy very close to our heart: Canada. The result is:
What? 15.74% and I didn't even buy more units at the depth of the recession like with Gold or the Asian ETF! So who's your Daddy?

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