Monday, August 26, 2013

Cheap emerging markets: Bargain basement or falling knife?

Emerging markets are looking very cheap and the beaten-down prices could be a solid base for future returns, but funds should be prepared for more short-term losses if they take the plunge.

Stocks, bonds and currencies across the developing world are suffering a rout on a scale not seen for years. Asset price valuations look dirt cheap - versus emerging markets' own history and also possibly against their future prospects.

But on the downside, the impending rollback in Fed money printing will almost certainly drive up U.S. bond yields, the higher global borrowing costs seeping through to hit economic growth across the developing world.

And falls in currencies such as Indian rupee and Brazilian real are a worry, eroding foreign investors' returns from local stocks and bonds.

Yet, even as such fears feed the selling momentum, cheap valuations are starting to catch the eye of some investors who are looking at the sector from the perspective of a few months or even a few years down the road. (more)

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