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Julian Gibbs

The US economy is expected to grow by between 3.5 and 4 per cent next year and the world economy as a whole should recover. Growth forecasts for most emerging markets are 4 to 8 per cent. In an environment of relatively lower investment returns from developed markets in the coming years, I believe that prospects for economic and earnings growth for emerging markets look very attractive.

In fact, emerging markets are already beginning to outperform. I expect this trend to continue at least for the next two years.

John Payne of Baring&#39s emerging markets team believes that the asset class as a whole will give a 10 per cent return over the next 12 months, with earnings growth of 18 per cent by the end of this year and 21 per cent in 2004.

He quite rightly points out that emerging market valuations remain remarkably cheap at 30 to 40 per cent of the average of the past seven years and yet continue to offer good investment opportunities.

Some countries which look particularly attractive are Brazil, especially telecommunication companies and banks. Turkey, which is now likely to join the EU, and Mexico are other strong economies while Israel is becoming attractive again with the end of the war in Iraq. Argentina is also well on the way to recovery.

In the Far East, South Korea, Taiwan and Indonesia look attractive, with the effects of the Bali bomb now reducing. While all these markets are volatile, the sensible answer is to invest in well managed unit trusts covering the whole emerging markets sector, such as First State global emerging markets, Aberdeen frontier markets and Baillie Gifford emerging markets.

For those who wish to stick to Europe, JPMF new Europe shares and Baring emerging markets investment trust are all likely to perform well.


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