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Investing for a Lifetime: Managing Wealth for the "New Normal" by Richard C. Marston

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CHAPTER 9 Emerging Markets

Emerging markets” may be one of the best marketing phrases ever devised. The phrase seems to describe markets that hold a lot of potential for future economic growth and the promise of future returns for investors. Since this phrase is usually attached to national markets where income is relatively low, a more accurate description would be “the markets of less developed countries.” Some countries will have great potential for growth and may actually be growing quite rapidly. Other countries, however, may have either little growth or actually be stumbling backward. Argentina might be a good example of the latter. Its economy has been run so badly in recent years that it has been demoted by the MSCI database from “emerging market” status to a lower-level “frontier market” status.

The investment industry tends to focus on the success stories. In the past few decades, China has captured the imagination of investors with its rapid economic growth fueled by the export of manufacturing goods. Just a couple of decades earlier, South Korea and Taiwan had excited investors for much the same reason. The success of other countries has rested less on manufacturing than on services (India) or commodities (Russia, South Africa, and Brazil). All share one characteristic that interests investors, their potential for good investment returns due to their high rates of economic growth.

This chapter will show that at times emerging markets have provided handsome returns ...

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