India's not exactly alone in its glory days, many emerging markets—Turkey, Russia, Korea, Indonesia—too have kissed new records of late, making some fund managers wary. This is the fifth year in a row in which stockmarkets in emerging countries have outpaced their developed counterparts, according to Standard & Poor's. Funds like Templeton Emerging Markets and Emerging Market Leaders have paid an average (last three-year) return of 184 per cent and 103 per cent respectively. GE's real estate arm plans to invest most in new markets like China, India and East Europe, as do other funds like Blackstone and Goldman Sachs. But high returns from most Asian property market funds, including China, are now on the wane.
The Russian stockmarket index, buoyed by soaring energy prices, gained 63 per cent this year compared to 14 per cent for Britain's FTSE 100. In Turkey, with inflation at 7 per cent (compared to 62 per cent in the '90s) and annual growth forecast at 5 per cent, shares reached a new peak with the start of membership talks with EU. While fund managers are wary of Russian and Chinese shares, since companies there are often not run with an eye to investor gain, they advise investing in commodities which are booming mainly due to huge consumption by China.
China's as well as the region's prosperity are closely linked to the US slowdown, says Crisil. Among other Asian nations, Korea, a laggard for 15 years and one of the cheapest emerging markets, could finally log 5 per cent growth next year. Taiwan, with falling growth, is also favourite long-term pick.
But there are two risks: a high inflation scare and rising oil prices. The first may prompt sharper Fed rate hikes and investor return to safe assets. The second is dangerous since the rapidly reforming and urbanising countries won't lose their appetites for basic materials. Many Asian nations have been subsidising fuel prices to shield consumers and before long inflation may bridle growth.
Still, analysts think long-term prospects are good for reforming India and Turkey. With most countries having enough forex reserves to cushion currect account shocks, it's temptation all the way.
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