Submerging emerging markets

20 December 2007 By Martin Hutchinson

Emerging market stocks have just had five very good years on the trot. But they won t get a sixth. Tighter credit conditions, rising inflation and overvalued stocks will see to that. 2008 s winner is likely to be somewhere unfashionable but liquid like South Korea.

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The Morgan Stanley Capital International Emerging Market Share Index on December 12 was up 39.4% in 2007, following a 32.1% rise in 2006, a 34.0% rise in 2005, a 25.6% rise in 2004 and a 55.8% rise in 2003. This compared with 9.4% in 2007 for the MSCI Developed world index and a 6.4% return for the Morgan Stanley Emerging Market Bond Index.

According to the World Bank's International Comparison Program published December 17, developing countries were responsible for 40% of world Gross Domestic Product, measured at purchasing power parity. China was the world's third largest economy with 9% of the world's output and India its fifth largest economy with 4%.

The IMF estimates developing country growth at 6.7% for 2007, following a growth rate of 7.3% for 2006.

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The IMF estimates developing country growth at 6.7% for 2007, following a growth rate of 7.3% for 2006.

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