The MSCI Emerging Markets Index, up 28.09%, is the best performing major index year-to-date – better than the DASDAQ, better than the S&P 500, better than the DJIA. That’s an amazing reversal.
Emerging Markets have lagged the other major indexes over the last decade.
Why do we mention this? A well diversified portfolio often includes an allocation to Emerging Markets. Emerging Markets represent the economies of countries that have grown more rapidly than mature economies like the US and Europe.
Countries in the index include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, and the United Arab Emirates. Some of these countries have economic problems but economic growth in countries like India, China, and Mexico are higher than in the U.S.
Between 2003 and 2007 Emerging Markets grew 375% while the S&P 500 only advanced 85%. As a result of the economic crisis of 2008, Emerging Markets suffered major losses. It is possible that these economies may now have moved past that economic shock and may be poised to resume the kind of growth that they have exhibited in the past. Portfolios that include an allocation to Emerging Markets can benefit from this recovery.
We end the year 2014 with the US markets near a record high. The rest of the “developed” world, less the US, is down about modestly this year. Emerging markets, with a few exceptions, are down more than developed markets. One of the exceptions is Shanghai, up about 50%.
Oil prices plunged 46% thanks in part to a surge in US oil production due to “fracking.”
The US market’s recovery since March of 2009 has now lasted nearly 5 years with only a few pullbacks. There has been some concern about the market’s rise as headlines bring reasons for concern. Worries about the Middle Class, the anemic economy, an $18 trillion (and counting) national debt, plus unrest here and abroad gave worriers plenty to talk about.
But stocks are driven by corporate profits and profits are rising.
It’s too easy to get distracted by “noise.” While the issues that get the headlines are important, they may have little or no impact on the price of any one stock or the direction of the market. And in the investment business, that’s what counts.
This recovery is a testimony to the same things that boosted growth 150 years ago, 25 years ago and boost growth today. These are entrepreneurship, innovation and creativity.
Despite the government mistakes that caused the 2008 crash and the mistakes that have retarded economic growth since then – TARP, QE, over-regulation – the U.S. entrepreneur has refused to be held back. Profits are at an all-time high and so are stocks. Yes, there are problems, but nothing that a free people and a (relatively) free market cannot overcome.
Happy New Year!