The insane mantra of emerging markets

September 3, 2008

With emerging market stocks taking a beating, now would not seem to be an obvious time to launch new equity funds for the asset class. Benchmarker MSCI’s main emerging market stock index, after all, has lost more than a quarter of its value so far this year and concerns about the U.S. economic slowdown spreading are rife.

Despite this, U.S. investment manager Putnam says it is set to launch two new emerging market equity funds in October – one for U.S. investors, the other for Europeans. Is this perverse or prescient?

Putnam, of course, reckons it is the latter. During a chat with Reuters in London, Boston-based officials said the move reflected the long-term outlook for Pulling for emerging marketsemerging markets which has not changed during the current market ructions. Growth projections for emerging economies remain far more attractive for equities than do those for developed markets, said Matthew Scales, a senior investment product manager.

His colleague, currency chief Parker King, went further. He said that despite a decade long slump in the 1990s in Japan, anyone investing there after World War II would still have made far more money than they would have in U.S. stocks. A lot of this, he said, was because of currency appreciation and that would happen in emerging economies too. “The mantra out there right now is just insane for emerging markets,” he said.

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