Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Markets Failing to Give Another AI Mega-trend Buying Opportunity - 6th Jun 20
Is the Stock Bulls' Cup Half-Full or Half-Empty? - 6th Jun 20
Is America Headed for a Post-Apocalyptic Currency Collapse? - 6th Jun 20
Potential Highs and Lows For Gold In 2020 - 5th Jun 20
Tying Gold Miners and USD Signals for What Comes Next - 5th Jun 20
Rigged Markets - Central Bank Hypnosis - 5th Jun 20
Gold’s role in the Greater Depression of 2020 - 5th Jun 20
UK Coronavirus Catastrophe Trend Analysis Video - 5th Jun 20
Why Land Rover Discovery Sport SAT NAV is Crap, Use Google Maps Instead - 5th Jun 20
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20

Market Oracle FREE Newsletter


Mega Trends Suggest Investors Being Over Weight Emerging Markets

Stock-Markets / Emerging Markets Jun 14, 2009 - 04:35 AM GMT

By: Richard_Shaw


Best Financial Markets Analysis ArticleEverybody has a different stock / bond /cash allocation that is best for them.   Whether the selected equity allocation is high or low, we think over-weighting emerging markets and under-weighting developed markets within the allocation is the better long-term strategy for long-term investors — except for investors currently relying on, or about to rely on, their portfolios for life style support for whom the volatility may not be appropriate.

Much is being made of the fact that the key US equity indexes are near or slightly above their year-end 2008 level.  That is clearly better than not, but year-end 2008 was at a sorry level compared to year-end 2007.

These charts may help keep wider perspective.  They are three-year daily percentage performance charts that also show the 200-day simple moving average (a commonly used measure of the primary trend) and the year-end 2008 level.

The first thing you may notice is that exceeding year-end 2008 is far from where we once were both on the high and low side.   In most instances the primary trend is still down (only India shows a little curl up recently by its 200-day average).

The second thing you may notice is the superior performance of emerging markets versus the US, European and Japanese stock markets.  We included Singapore and Australia as key developed Asia markets, ex Japan.  They are also attractive, emerging market related countries that have outperformed the US, Europe and Japan YTD.

While the fact that emerging markets are ahead of developed markets this year is not sufficient to justify long-term over-weighting, it is certainly suggestive of the thesis.  More importantly, we subscribe to the Mohamed El-Erian / Mark Mobius / Jim Rogers concept that emerging markets are “where it’s at”, where it’s going and where it will be for a long time going forward.

Goldman Sachs makes similar projections about long-term GDP, where they expect emerging market economies to displace key developed markets in terms of their size rankings.  Specifically, they expect China to have a larger GDP than the US by 2027.

In our view, the massive changes in the structure of the US economy arising out of the recent credit crisis, the political opportunism that has followed, and the unprecedented US debt that has resulted will only accelerate and assure the relative out-performance of non-US markets over the long-term.

The US is in for a long workout period trying to overcome its new debt load, and find a new equilibrium for the dynamics of all the changes to rights and processes that have occurred and are expected to occur within the economy. Emerging markets will get less boost from US consumers, but they have created some internal consumer momentum of their own that can carry them forward while financially exhausted US consumers struggle and readjust.

We have been recommending for several years, that within whatever equity allocation you may have, if you are a long-term investor not currently or soon living through withdrawals from your portfolio, you should consider substantially over-weighting emerging markets and under-weighting developed markets.

We have no idea whether stock markets are likely to retrench from here, and if they do, emerging markets would probably fall harder as they have risen more.  However, over the long-term, we believe they will substantially outperform the US, Europe and Japan.

By Richard Shaw

Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.

Copyright 2006-2009 by QVM Group LLC All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Richard Shaw Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules