What friends say about you
Over the last few weeks, The Financial Times has been running an insert piece called The Future of Finance. The most recent insert (11/9/2009) dedicated to why emerging markets will continue to dominate markets.  One of the contributors, John Authors, who always has insightful articles penned a few sentences that really stood out in his article.  The following is the paragraph I am referencing. 

“Since the financial crisis struck, the economic world has divided according to the two poles of the US and China.  Countries positively exposed to China - such as South Korea, Taiwan, and the commodities exporters of South America have led the world out of recession.  Those more closely tied to the US - like Mexico, or arguably the UK, with its reliance on the financial services industry - have lagged the world.”

When I read Mr. Authors observation it struck me much like what my parents used to tell me, “who your friends are has much to say about you.”  Mr. Authors observation (as well as the whole of the Financial Times insert) supports my notion that foreign markets, particularly emerging markets is where the growth is going to be for a long time.  Here are some numbers to support the stance that emerging markets warrant more weight in portfolios.

• MSCI Emerging Market Index moved up 7.2 % since the fall of Lehman Brothers (9/15/2008) versus a drop of -11.7% for the S&P 500
• In the past six years the United States' share of global total capitalization has fallen from above 45% to below 30%.
• Brazil, Russia, India and China make up  13.1% of world market while Germany, France and the UK combined make up 13.9% of the world market.

Although history has shown emerging markets to be more volatile than developed markets, the correlation of rises and falls in both have gotten much closer.  Meaning, emerging and developed markets are moving in a more coordinated fashion.  Historically, emerging markets have had significant runs up and down.  By having entrance points, exit points and trailing stop losses you can tame some of the emerging market volatility that typically scare away many advisors and investors.