Emerging Markets Thoughts for the Long Term

Emerging markets continue to bounce around and baffle investors. 

Depending on what index or fund you were following, emerging markets were up huge yesterday, between 3-5%.  But Emerging markets are still lagging heavily this year. As of this writing, the MSCI Emerging Markets Index is down -9.20%, while the S&P 500 (which is all US stocks) is up 18.79%. Here is a chart


Now the discussion has turned to whether this is temporary or long term.

As I’ve written in other posts, it is not surprising that there has been a serious slow down in emerging markets. They had a great run between 2000 and 2009. Nothing goes straight up forever.

I happen to have quite a bit of confidence that emerging markets should remain part of an investor’s long term portfolio. Just as the US had its booms and depressions during the 1900s, so will emerging markets. Over the next century I beleive they will continue to become a larger portion of the global investment market, and portfolios should adjust appropriately.

What are the costs, what is the value?

It’s really based on the most basic economic concept. Something that is so basic, people often don’t even think about it. In thinking about the long term investment potential of emerging markets, I ask myself:

“What does it cost to employ human labor?”

“What is the value the labor will produce?”

If the value produced is a lot more than the cost, the ultimate result should be good investment returns. If you look at emerging markets and their demographics, I think this equation looks quite promising over the next several decades.