Heidi Moore had a post at Marketplace the other day about mutual fund managers moving more into emerging markets, even going to the extent of removing previous (artificial) limits on how much they could invest in emerging.
Off the top there are two different thoughts here. The first one is whether a move by mutual fund companies to remove these limits could be a bell ringing on the space. A permanent bell seems ridiculous only because many of the countries thought of as emerging have decent fundamental underpinnings and will continue to have decent fundamental underpinnings for many years.
So then a bell ringing could only realistically be cyclical and of course there are almost always markets facing normal cyclical issues. Normal investing and market behavior includes cyclical declines. If we are lucky there might be some warning that would allow for reducing exposure but any great ten year story will still include a couple of large declines.
The other point I see here is one I’ve been making for a while now which is that term emerging market has lost most or all of its meaning. Each country is its pros, cons and attributes. Building a diversified portfolio can mean assessing the pros, cons and attributes of various countries and blending together different types of pros, cons and attributes to gain exposure to countries that will have different reactions to certain types of cyclical events.
Of course this should not create the illusion that some countries should be expected to completely avoid the occasional panic that comes along. Before the financial crisis I set what turned out to be a proper expectation in this context which is that some countries will turn down later, come back sooner or go down less. As the US market peaked in October 2007 countries like Brazil and Norway kept going up until May and June of 2008. Chile’s peak to trough decline was in the thirties, percentage-wise.
This all serves to smooth out the ride which I’ve written about repeatedly as being a crucial long term goal of what I’m trying to do.