Gwyn Roberts

08/12/2010 Author: Gwyn Roberts

Editor's view - 9 December 2010

All bubbles will eventually burst, but this knowledge seldom stops us from over-inflating the ‘next big thing’. From tech crash to property blow-up, even experienced investors will stretch opportunity until a gossamer thin skin is breached by reality. While this year most areas of the financial sector remain deflated, emerging markets have been singled out as the next idea likely to go pop.

The IMF and World Bank are certainly concerned, warning us about the deluge of money pouring into these countries. Most investors have refused to listen and, if not already invested, are pacing around the Bric nations, waiting for the right opportunity.

Managers remain at the vanguard of this activity. Western shops are busily setting up in Brazil and Hong Kong, while funds operating in a market like Russia – still chronically undervalued – have enjoyed a year of impressive performance. And it’s worthwhile remembering that despite the dire warnings, several decades of Western bias still means that most investors are underweight in emerging economies.

In fact, such is the imbalance that despite generating more than 30% of GDP, developed world portfolios still have less than 5% of their allocation in these markets. This situation doesn’t negate caution – these are poor countries with less-well developed infrastructure – but it suggests that there is plenty of growth potential in store for 2011.

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