Why Emerging Markets are Increasingly Moving to Their Own Rhythms (AP)

An AP article recently noted how emerging market performance has become more varied by taking a look at the 23 countries that make up the MSCI Emerging Markets index. In 2011, the general trend was down as stocks in all but two of the index’s markets fell while every mutual fund tracked by Morningstar that invested in a broad range of emerging markets had losses. In 2012, the trend went in the opposite direction with all but four of the index’s component markets rising and every emerging market stock mutual fund but one making gains.

However, emerging market performance has since become much more scattered as over the past year, 10 of the MSCI Emerging Markets index’s stock markets are up and 13 are down. Among mutual funds, the top performer has returned 18% while the worst performer lost 16%.

One factor causing the performance divergence are falling commodity prices which hurt commodity exporting countries (e.g. falling oil and copper prices have hit Russia and Chile) while helping commodity importing ones. Another factor has been politics with geopolitical tensions hurting some emerging markets (e.g. Russia) while domestic political changes have helped others (e.g. India electing Prime Minister Narendra Modi).

In addition, a stronger dollar means interest payments made by bonds in other currencies become less valuable than those made in dollars. For example: Emerging market bonds denominated in their respective currencies have broadly seen losses recently while those denominated in dollars have broadly seen gains.

To read the whole article, The Mixed-Up World of Investing in Emerging Markets, go to the website of the New York Times.

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