Canadian Investment Review

71% Say Emerging Markets Will Outperform

Written by Scot Blythe on Thursday, October 21st, 2010 at 9:35 am

race horseEmerging markets seem likely to outperform developed markets, according to a poll on CIR Online Debates.

That’s the conclusion of investment managers, analysts and plan sponsors after a discussion on how emerging markets will fare against developed markets on Canadian Investment Review. They voted 71% in favour of emerging market outperformance.

Paul Kapsos, a portfolio manager at Ontario Teachers’ Pension Plan, argued that, despite their crisis-prone reputation, “many countries – Brazil, Indonesia, Colombia and Malaysia – have adapted following these crises and have followed macro policies which reduced systemic risk. On the other hand being a developed country does not prevent banking and/or sovereign debt crises, as the last few years have made painfully clear.”

So that’s the big systemic risk neutralized for the moment. But are emerging markets in a bubble? Kapsos doesn’t think so.

Mark Williams, executive-in residence and master lecturer at the Boston University School of Management, suggests otherwise. He sees “cheap capital, early profiteers, a desire for oversized returns, marketing hype and large inflows of money chasing fewer good investment opportunities.”

Once currently depressed developed markets return to their normal patterns of growth, investors will pull their money back into the safety of the markets they know and trust, Williams suggests.

But readers disagreed with that argument.

Moderator Adam Bomers, director of investment research at Aurion Capital Management Inc., gives three reasons. The demographics of emerging markets favour continuing growth, stock valuations are comparable to those in developed countries and corporate governance is more visible and transparent than ever thanks to the introduction of international accounting standards.

CIR Debates Online offers timely commentary on investment issues portfolio managers and plan sponsors. Join us for our next debate, on infrastructure.

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