Capital Flows And Change Of Ownership Of Assets In Countries Introduction to Investment Trusts – Emerging Markets

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Introduction to Investment Trusts – Emerging Markets

Introduction to Mutual Funds – Comparing Emerging Markets

The emerging market mutual fund landscape around the world is a fascinating and diverse environment that offers long-term investors the opportunity to see significant returns. For example, reports from various investment fund managers show that over the past decade, the average global emerging market investment fund has returned 461% (The Telegraph Online, 16/09/2011).

It is argued that this is because emerging markets are currently in a much better position than their Western counterparts due to their typically higher fiscal reserves and lower debt levels, as well as strong macroeconomic trends.

Investing in emerging markets is therefore potentially profitable through an investment fund. However, it is important to remember that emerging market funds, which are only owned as part of a diversified investment portfolio, have recently produced the safest returns, especially for long-term investors.

Here we take an introductory look at the Investment Trust landscape within a selection of key emerging markets.

South America:

Countries in South America have probably seen the biggest change of all emerging markets and investment fund activity has grown recently.

For example, the integration of the stock exchange between Colombia, Chile and Peru, which made it the second largest stock exchange in the region, drastically changed the landscape in the region, especially as Mexico and other countries also expressed their desire to join.

Major cities across the region are also increasingly showing signs of becoming key international business and tourism destinations due to extensive improvements to local infrastructure, a trend that can bring economic benefits to foreign investors. For example, Colombia’s real gross domestic product (GDP) grew by about 6.0% year-on-year in 2011, while inflation was less than 4% at the end of 2011, allowing for a generally optimistic economic outlook.

Some areas in the region are also showing a forward-looking mindset regarding energy production and consumption with an emphasis on efficiency, which, together with significant growth in production volume, should create a healthy environment for future investment.

Southeast Asia

Southeast Asia has experienced major economic changes over the past decade. Offering the potential for real growth in many emerging markets, this dynamic region has become an attractive modern investment venue.

Economies in Southeast Asia are growing faster than many developed countries such as North America and Japan, as well as Western European countries. They have also outperformed many of their emerging market peers, reflected in a steady increase in investment fund activity across the region.

This growth has been largely fueled by the fact that Asian economies are rapidly increasing domestic consumption of a wide range of goods. Increased demand for basic raw materials from Asian industry has provided further impetus and the rising demand is expected to continue with industrial production growth, providing more impetus to investment fund activities.

For example, the Indonesian stock market was one of the best performing markets in 2011 – the MSCI Indonesia index rose 6% in US dollar terms in 2011 – and this is predicted to continue in 2012-2013.

This strong performance matches Malaysia’s growth as a highly attractive investment destination, particularly for consumer and commodity stocks. Due to a sound fiscal policy, stable macroeconomic fundamentals and continuous demand for natural resources, the long-term outlook for the country appears to be flexible and positive.

Thailand also appears healthy and the economic recovery in good shape. Key to this economic growth was the preservation of the country’s substantial agricultural resources, the exploitation of offshore gas reserves, and a well-established and highly successful manufacturing and tourism industry.

As a whole, Southeast Asia, like South America, will also benefit from the continued improvement in the quality of infrastructure in each country, and these developments will affect every country in the region. This should mean that an investment in a well-managed and regionally experienced fund will yield great returns.

China

China is the most populous country in the world and remains one of the fastest growing major economies.

Consumerism has seen tremendous growth in the modern era as per capita income has increased. This high demand for consumer goods and services ensures that the earnings growth outlook for managed investments is extremely positive. China’s foreign exchange reserves are also the largest in the world, making it less vulnerable to external financial downturns. Coupled with the fact that inflationary pressures in China have continued to ease and that the industrial sector is still experiencing strong growth, it means that international investors are still attracted to China’s booming economy and are continuing to increase their activity.

Commodity stocks are an obvious attraction as global demand for commodities is expected to continue to grow over the long term, so commodity prices will continue to rise due to ongoing supply and demand constraints associated with the area.

India

A weak rupee means that there is currently a risk of inflation, but it also makes India more competitive in the global environment. Some companies have been adversely affected, while others, such as exporters, have benefited from higher foreign earnings.

If foreign investment in India were to increase, the strength of the rupee would increase and this appears to have been fueled by the government’s decision to allow more than 50% foreign ownership in the retail sector.

However, the general weakness in global equities and the fact that the Indian market is slightly more expensive than other emerging markets means that large investment flows into the country could be hampered in the short to medium term. This adds to the overall volatility of the Indian market and as investors around the world seek to shift their money to assets they perceive as safe due to the global financial climate, predicting future mutual fund activity in India is challenging.

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