Investment Week 15-04-2013

In recent weeks Japanese and US equities have been attracting investorsā€™ interest but, since the beginning of the year, the most significant investment flows have favored emerging markets funds.Ā  Investors happy to take on risk have decided that emerging economies offer a higher chance of upside than their developed peers.Ā  The performance of the former since the start of the year could be giving pause for thought.

Global emerging markets funds have averaged just 4% since 1 January 2013 and those funds with a large ā€˜BRICā€™ focus have suffered more.Ā  Chinese funds have had a particularly difficult time, with the average China/Greater China fund up just 3.5%. This compares with a rise of 18.8% for the average North America fund and 23.7% for the average Japan fund.

The economic backdrop in the major emerging markets would not appear supportive for equities. This week the government in China announced a surprise slowdown in economic growth to 7.7%.Ā  The sluggish world economy appears to be reflecting in Chinese manufacturing industry, in spite of the governmentā€™s best efforts, the consumer economy has yet to develop sufficiently to compensate for this weakness.

A number of the other BRIC economies are showing strains. In India, political instability has been affecting confidence.Ā  Brazil has seen a slowdown in growth despite easing monetary policy, and in Russia, weakening consumer spending and a slowdown in investment activity has limited growth.Ā  There may of course be brighter opportunities elsewhere in emerging markets but the BRICs dominate the global emerging market indices.

Europe has started to see some improvement to their economic outlook.Ā  The most recent set of monthly data showed industrial production across the eurozone was up by 0.4% in February, 0.2% higher than expected. Ireland and Portugal have been given an extra seven years to repay their bailouts and both countries appear to be making genuine progress towards reforming their economies.

Investors appear unwilling to give the eurozone the benefit of the doubt.Ā  Many investors have the economic power shift from West to East built into their psyche.Ā  The danger is that they end up missing the opportunity to re-examining areas that may not be as bad as expected.

Marginal growth in the global economy may now start coming from areas such as Japan or the eurozone rather than emerging markets, where high growth rates are already factored into analysts’ estimates. Investors need to ensure they do not neglect developed markets in hot pursuit of the nebulous ā€˜growth of the futureā€™.

Expert Wealth Management provide independent investment advice Abingdon, Witney, Oxford in Oxfordshire.

The contents of this document do not constitute advice and should not be taken as a recommendation to purchase or invest in any financial product. The value of a market investment can go down as well as up and you may not get back the full amount, particularly in the short term. Before taking any decisions, we suggest you seek advice from a chartered financial planner.

 

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