"Energing market speculation tends to appear at a juncture in the economic cycle when
declining yields on domestic bonds combine with an excess of capital to make
foreign investments particularly attractive."
Chapter 4, Fool's Gold: The Emerging Markets of the 1820'sFrom Bloomberg:
Emerging-market assets are so cheap that they may be “the trade of a decade,” according to Research Affiliates LLC, a sub-adviser to Pacific Investment Management Co., one of the world’s biggest money managers.
They’re joining a growing number of investors, including BlackRock Inc., Franklin Templeton and Goldman Sachs Asset Management, who are turning bullish on emerging markets after three years of underperformance. With borrowing costs at the highest levels since the depths of the global financial crisis, bond investors are being compensated for challenges ranging from falling commodity prices to China’s economic slowdown, BlackRock said Tuesday.
“The exodus from emerging markets is a wonderful opportunity -- and quite possibly the trade of a decade -- for the long-term investor,” Christopher Brightman, chief investment officer at Research Affiliates, said in a post on Pimco’s website Wednesday. “We are increasingly confident of our positioning in emerging market stocks and bonds.”
Developing-market securities accounted for 35 percent of the Pimco All Asset Fund and 39 percent of the Pimco All Asset All Authority as of Dec. 31, according to Brightman, who is based in Newport Beach, California. The two funds, managed by Rob Arnott who co-founded Research Affiliates in 2002, had combined assets of about $29 billion at the end of January, data compiled by Bloomberg show.
Brightman said emerging-market stocks are “exceptionally cheap” after MSCI Inc.’s benchmark gauge declined 30 percent over the past three years.
He pointed out that the so-called Shiller P/E Ratio, a measure of valuation based on cyclically adjusted price-to-earnings ratio, fell to 10 in January. There have been only six times when the measure has dipped below 10 over the past 25 years. In the following five years, the stocks rallied an average 188 percent, according to Brightman, who oversaw the endowment at the University of Virginia before joining Arnott’s Research Affiliates....MORE