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Is the market ready to get spicy?

As the possibility of a recession in the US continues to be debated it seems that many fund management firms have picked up the batten and decided now is the best time to present their case for investing in emerging markets.

And there is call for it, with concerns over how far the sub-prime contagion is likely to spread with who and what is going to be affected still largely unknown.

Outgoing Fidelity UK special situations manager Anthony Bolton summarised it as well as anyone when he said that the chances of a recession in the US are 50-50 while also claiming that we can only see the ripples of the “real world” credit crunch with no-one aware of what is going on underneath, hence no-one can analyse it.

What most fund firms will be looking at however is this mound of cash that people have pulled out of the market in a bid to “de-risk” as they wait for opportunities to re-invest and with the average global emerging markets fund returning some 8.6 per cent in the past three months, according to figures from the IMA, you can understand the attraction.

If you put that it into context the average UK all-companies fund is down 2.9 per cent over the same period, while the superstar UK equity income sector is down 3.4 per cent. It’s also no surprise that the average IMA global emerging market fund has grown by £15m from £227m in July to £242m in October.

Martin Currie has seen its own emerging markets fund double in the past couple of weeks, while the group is also looking at the possibility of launching an onshore version of its greater China fund, with the Sicav version having produced strong returns under the management of James Chong.

New Star has taken the growth of emerging markets a step further with the planned launch of its heart of Africa fund.

The fund officially launches on October 22 as the first pure UK onshore fund to invest in sub-Saharan Africa, excluding South Africa.

But is the turmoil a big enough excuse for advisers to jump into emerging markets any bigger than they have before?

Hargreaves Lansdown senior adviser Ben Yearsley says: “If your looking at any emerging market you really should limit your portfolio to 15 per cent. India suspending its trading on the back of losses last night is the perfect warning for explaining just how volatile these markets are.”

New Star heart of Africa fund manager Jamie Allsopp described it best when he said that his fund is high risk and it is his job to de-risk the vehicle to make it eligible for investment.

The bottom line is that these fund are always going to be dangerous regardless of whether the funds have sub-prime contagion or not. Investors have seen bubbles from the likes of technology before and unless you can afford the risk the danger is it could easily happen again.


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