The Rationale for Investing in Emerging Markets
by David Hale
David Hale is a macroeconomist and chairman of David Hale Global Economics, Inc. He spoke with me recently about why individual investors should consider emerging markets.
—Charles Rotblut, CFA
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Charles Rotblut (CR): What’s the rationale for investing in emerging markets? Why should investors include securities from these countries in their portfolios?
David Hale (DH): Emerging markets are a large and growing part of the world economy. They’re significantly outperforming the old industrial countries. Their growth rates over the last four years have been around 6+%. The old industrial countries have a growth rate less than 2%. And this will continue indefinitely. Emerging markets now account for about 36% of global GDP [gross domestic product], but they account for half of global exports and half of global capital spending. They’ve also got $7 trillion of foreign exchange reserves, compared to $3 trillion in the old industrial countries.
China plays a big part in this. China is now the world’s largest exporter of tradable goods. China’s investment share of GDP is 48%. Most developing countries are somewhere between 25% and 35%. Most old industrial countries are between 15% and 16%. China also has $3.3 trillion of foreign exchange reserves, so it is a big part of that story.
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Discussion
I have followed David Hale in the newspapers for several years and found his reasoning to be sound. He is one of few who seem to have an innate ability to grasp the overall picture accurately.
posted 8 months ago by Sumner Moulton from Maine
Emerging markets are quite dependent on US markets because we are the princeable buyers of their exports. Hence they will be more volatile than our markets.
posted 7 months ago by William Akers from Texas
