Indexfundfan\’s blog (new URL is

May 22, 2006

Are you overinvested in emerging markets?

Filed under: Investing — indexfundfan @ 4:46 pm

Emerging markets retreated with a vengence in recent weeks, much to the dismay of many new emerging market investors:

NEW YORK, May 22 (Reuters) – Major Latin American stock, bond and currencies plummeted on Monday, and stocks were on their way to post their biggest one-day drops in two years, as investors stampeded out of emerging markets worldwide fearing higher interest rates and slumping commodity prices.

The decline followed earlier slumps in Europe and Asia. Turkey’s stock market fell 7 percent, and the Indian bourse fell 10 percent, prompting a one-hour suspension tradimg suspension.

The Indian bourse closed nearly 4 percent down, at a 10-week low. Hong Kong stocks closed off about 3 percent showing their biggest fall in two years.

In Moscow, Russian shares crashed Monday in their biggest one-day percentage slide since 2003, forcing the MICEX exchange to suspend trading after its main index fell by 11 percent. That accelerated a nine-day selloff which has sliced over a quarter off the value of Russian stocks.

The sad part is that many of these investors only recently decided “to diversify into emerging markets”, having been enticed by the many emerging market funds’ recent performance numbers.

The ones that really believe that emerging market equties would add to their portfolio diversification would stay the course and continue to DCA according to their asset allocation plan. However, I believe we will see a fair number of them running for the exits very soon.



  1. Hi shlow, i hope you are not refering to me in this article lol..

    Comment by Drizzt — May 25, 2006 @ 5:40 am

  2. There are those who are “enticed by the many emerging market funds’ recent performance numbers.”

    Then there are those who innocently contribute to emerging market according to AA plan, a few days before the slide, like me, ha… What an experience. I have since switched off to the price movement until the next contribution.

    Comment by choozm — May 26, 2006 @ 7:58 pm

  3. As we have all now experienced first hand, emerging market equity is volatile. I am not sure if many new investors are able to handle a large allocation to emerging markets. Investors who have listened to those advocating an overweight to emerging markets / Asia (Thailand, Taiwan, Korea etc.) are now in for a rude shock (fall of 15% in a matter of two weeks).

    Comment by indexfundfan — May 27, 2006 @ 8:07 am

  4. People are saying the market has bottomed.

    Could be a good time to get in.

    Comment by Aragorn — May 27, 2006 @ 6:51 pm

  5. No guarantees on the market reaching the bottom already. Stay the course…

    Comment by indexfundfan — May 30, 2006 @ 6:32 am

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