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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