Emerging Markets? They've Already Emerged


"The GDP gap is only likely to get wider."

World leaders are in Seoul for a key G-20 meeting, and there are obvious tensions regarding currencies and trade practices that need to be resolved.

But for investors, it's time to stop worrying about the rhetoric and embrace the fact that many emerging market economies are now growing at a much more rapid clip than the United States, Europe and Japan. There really is no denying the clout that China, India, Brazil and many other so-called developing markets now have on the global economic stage.

According to data from ISI Group, the gross domestic product of emerging markets surpassed the GDP of developed nations. The gap is only likely to get wider in the coming years.

"Emerging markets should outpace the developed world in terms of GDP growth, especially now that you have the rise of a wealthier middle class," said Brent Jones, portfolio manager of emerging markets equities with GE Asset Management in Stamford, Conn.

Another major advantage that the emerging markets have is that they simply did not gorge on debt. "Fiscal deficits in emerging markets are roughly half of the developed world," said Cristina Panait, co-manager of the Payden Emerging Markets Bond Fund in Los Angeles. "Also, in terms of the leverage in their banking systems and with consumers, the fundamentals are a lot sounder in Latin America and Asia."

But experts urged investors to be cautious. Not every emerging market is the same, and riskier and smaller emerging markets may actually be more attractive for the long-term.

"It's a case of the haves and have-nots and the emerging markets are the haves right now," Gibley said. "I still like the emerging markets for the long-term but you have to be concerned that low rates in advanced economies is fueling a bubble."

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