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Investment view

It is a little while since I cast a glance outside the UK and the US. There are plenty of other places to invest, though. Some of them have taken a fair old pasting as the autumn unfolded. In part, this has been a consequence of the “flight to quality” – a natural reaction when the world seems uncertain. Emerging markets fall neatly into the category rather overlooked under present circumstances.

Let us be fair, emerging markets, even if you broaden the term to include those countries in South-east Asia, the shares of which tend to be found in geographic funds rather than ones devoted purely to emerging markets, are but a small proportion of global market capitalisation. Presently they count for around 6 per cent of the world&#39s stockmarkets by value. That is significantly less than we represent in this country. Yet these emerging markets cover countries whose populations go to make up 84 per cent of the world total.

It has always struck me that there are some very striking imbalances between populations, economies and stockmarket capitalisation. Take the US. We all know it is the world&#39s most powerful economy – it accounts for 25 per cent of global economic activity. Yet the stockmarket accounts for more than half of the world&#39s total. The American stockmarket is valued at more than all the other markets in the world put together. It really does make you think.

We all know the American population is a relatively small percentage of the world total. It is less than continental Europe, where all the stockmarkets put together would amount to not much more than half of that in the US. The economies of Europe, though, are becoming close to being comparable with the one remaining super-power. There is, indeed, hope that Europe – if it can get its act together – may yet pick up the reigns as the home consumption and powerhouse of the world economy. That is if China does not get there first. I found a recent comment by a Japanese business leader interesting. Remarking on the pending issue of euro notes and coinage, he said the euro was transforming the supply side of EU economies, creating pan-European businesses but that demand was still fragmented for reasons of culture and language. Europe still has a way to go.

But to return to the case for emerging markets, these countries account for 21 per cent of global GDP – hardly a sparkling contribution, given the percentage of the population, but a rather better result than that delivered by stockmarkets. It is not fanciful to believe this is the area where there should be ground to be made up. The relative under-representation of emerging markets globally should correct over time. In part, this is because these lesser-developed countries generally have a very poor population, often concerned mainly with subsistence agriculture. But as prosperity cascades out from the developed world- as we must all hope it will swiftly following the terrorist attacks – so the importance of their stockmarkets will grow. These markets do, after all, deliver growth potential significantly ahead of the longer-term trend capability of the developed world.

In the meantime, emerging markets appear cheap in global valuation terms, in part because they have been deserted by nervous investors. It may be worth dusting down those prospectus that were put in the “Not until events return to normal” pile. There is value – and probably a little fun – to be had in these smaller stockmarkets. You may need a little patience but these days you can suffer just as great volatility at home, so it is worth considering putting a little money where it might ultimately do a little good, and may even reward handsomely. Providing you can take the risks involved, of course.

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