The Economics Journal

MarketWatch has a good report on the progress in emerging market indices the past 3 months. While some of the indices have gone up, I would really be careful of some of those countries. While countries like China and to some extent India and Brazil seems a relatively safe long term bet, given their size and demographics, it is not clear how other countries will fare in the crisis of a lifetime. Chile and Israel are stable democracies and good rule of law, but given their smaller size it is not clear if they can face a sizable change in global trade patterns. Argentina and South Korea might get into deeper trouble, based on their fragile financial systems as seen in the recent history.

Here is the the report.

Of the 23 country benchmarks that comprise the widely watched MSCI Emerging Market Index, 14 have outperformed the S&P 500.

Driving this outperformance, investors have bet that economies which rely heavily on exports and commodities are poised to benefit first when the global economy starts to recover.

MSCI EM index, which as of last week had rallied 8% since the S&P 500′s Nov. 21 low, now shows only a 1.5% advance.

The gains since November didn’t come easy, arriving on the heels of steep yearly losses for the markets as the credit crisis tightened its grip and consumer and investor sentiment slid. The Bovespa ended 2008 down 53%, ending five years of consecutive gains. The Shanghai Composite fell 65%, Taiwan’s Taiex dropped 46% and the Merval tumbled 54%.

Historically, emerging markets usually bounce back stronger than U.S. equities off their bottom levels, says DeGreen, who also serves as portfolio manager of the DeGreen Global Fund. That’s because investors are seeking exposure to emerging-market economies which grow at a more rapid pace that the U.S. economy and those in other developed markets.

While the last major trough-to-peak performance on the S&P 500, which occurred in October 2002 through October 2007, produced an average annual return of 14%, Brazil, Russia, India and China each produced about more than three times those returns.

While emerging markets appear to have a "huge amount of embedded value," they remain a risky asset class, said Jerome Booth, head of research at Ashmore Investment Management Ltd. in London.

"You do have this problem that they are linked to developed markets and U.S. sentiment, and risk appetite globally. That risk appetite is going to be driven by where the central problem is: the deleveraging process in the developed world."

Countries in Asia and Latin America are struggling with their own banking and credit problems. Given these risks, Booth said he currently prefers investment in emerging-market corporate credit and sovereign debt over equities.

"But if you’ve got to do equities, [emerging markets] are a better value than the S&P," he said