Emerging markets diverged from their developed world counterparts and increased 3.7 percent during the fourth quarter, resulting in a 39.8 percent gain for 2007.
Market Review: This is the fifth consecutive year of double-digit returns for emerging market equities. Investors continue to be drawn to the high economic growth rates in most emerging market countries.
High commodity prices have also provided a boost for many of these markets.
Several countries that had been leading the benchmark during the first nine months of the year declined during the last quarter, while some lagging markets began to outperform.
Although "emerging markets" are considered a single asset class, each country has its own economic and political considerations.
These differences came to the forefront in the last quarter of the year.
Asian emerging markets were up only 0.2 percent during the quarter, yet they increased 41.6 percent for the year.
China fell 3.7 percent, but remained one of the leading emerging markets, up 66.2 percent for the year.
The Chinese economy is showing signs of high inflation, and the government’s latest tonic of interest rate increases and lending controls has done little to cool inflation or the economy.
While GDP growth expectations have come down, most economists still expect official growth rates to be above 10 percent, with real numbers higher than that.
The Korean market fell 4.6 percent in the quarter.
There appears to have been a shift in investor sentiment in Korea away from heavy industrial companies in favor of companies that benefit from domestic growth, including banking and real estate-related companies. Indian stocks rallied 23.3 percent in the quarter.
India’s relative lack of integration into the global economy has made it a safe haven for investors concerned about a global slowdown.
Latin American equities were up 7 percent in the quarter and 50.7 percent for the year.
However, Brazil, with a 13.3 percent return, was the only major market in the region with gains during the quarter.
Brazil’s 80 percent return for the year was the highest of any major market.
High commodity prices and good news from PetroBras, the Brazilian oil company, buoyed the market. I had great experience earlier buying PetroBras.
Mexico lost 2.1 percent on fears of higher inflation and that a slowing U.S. economy would be detrimental to its markets.
The Europe, Middle East and Africa (EMEA) regions’ gain of 9 percent turned a laggard into the best performing emerging region for the quarter, and boosted annual performance to 26 percent. Russia added 17.4 percent during the quarter, but its 24.8 percent increase for the year made it one of the poorer-performing major markets.
Energy-related names have boosted Russia, as has some resolution regarding politics once President Vladmir Putin was no longer formally in charge of the country.
While positive in the quarter (up 1.3 percent), South Africa has lagged most of its peers for the year. Turkey was up 5.9 percent for the quarter and 74.8 percent for the year.
Outlook: Despite the gains in 2007, valuations in many emerging markets remain relatively attractive.
As economic forecasts for the developed world and the United States in particular have deteriorated over the past few months, the economic outlook for most emerging market countries has remained positive.
Once again, please do your homework and do extensive research before investing your hard-earned money.
