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How investing in emerging markets stocks will fare in 2013

Updated on February 4, 2013

emerging markets are the cynosure

Stock investors the world over vie to invest in emerging markets. Dividend pay outs or bonuses are higher to comply with the tax laws of those markets. Generally these tax laws prohibit repatriation of corporate profits to the parent company. Investors like to invest in emerging market funds as long as they declare higher dividends than US/Euro funds.

On the contrast, highly evolved US/Euro corporate require constant reinvestment of a substantial portion of profit in bringing out newer products to attract/retain customers who are highly demanding. Hence, the scope for declaration of dividend is quite low compared to emerging market funds.

Equity income index of emerging markets for the 4 year period ended 2011 proves this.

However, the dividend pay out record of each emerging markets greatly varies. GMO emerging market fund paid annual compound return of 27.8% compared to Wisdom tree middle east dividend fund that paid 12.1% return.

some foresight for 2013 about emerging markets

US and Euro markets being powerhouse economies set the pace for even emerging market economies whose performances are complementing each other. US economy is recovering across major sectors despite governmental spending contraction for few months. Hence, emerging markets which have units exporting to US/Europe can be sure to show a good performance in 2013 too. Inflation is unlikely to be a cause for concern.

Many Euro economies completed structural reforms with a positive impact on efficiencies of production, cost of labor in particular. As a result, the corporate profits surge and rate of fresh capital formation might stimulate the employment market too.

Emerging markets to watch for:

China is sure of of 8% economic growth evidenced by increase in corporate credit consumption. Indian economy will get into penultimate year before general election in 2014 and government there seldom takes tough decisions on macro economic issues, sectoral allocations, etc., on the eve of elections.

Sub Saharan Africa has stars such as Ghana and Nigeria showing strong growth. But South Africa and Kenya are unlikely to do better in 2013.

Latin American countries such as Brazil and Mexico will benefit from improving economic performance of US. Venezuela and Argentina could miss the flight due to worse deflationary conditions.

Emerging markets to avoid:

Middle East nations dominant in petro production cause no worry. Egypt, Tunisia and Morocco have to bill huge subsidies on goods and services and unlikely to do better in 2013.

Emerging Europe causes concern and may languish even in 2013 due to recessionary conditions. Russia emerges as a solid and mighty performer for investment. Discovery of huge energy reserves as well as introduction of new financial derivatives of investment make Russia attractive destination for investments. Read more news on emerging markets of the world…


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