The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- Popular emerging markets in the BRIC configuration -- Brazil, Russia, India, China -- suffered through severe bear markets in 2011. Yet far too many writers attribute the 20% to 33% declines to Europe's sovereign debt crisis alone.
It is true that the debt mess sent the U.S. dollar higher at the expense of the ruble, "real," and the rupee. Contagion containment has also damaged the prospects for emerging market companies to export their wares to the eurozone.
That said, one cannot explain 2,000-to-3,000 basis point differences in performance between emerging market stocks and U.S. stocks by simply pointing to a "greater adverse impact" notion. In reality, the bearishness is primarily due to gruesome inflationary pressures.
Consider China since November 2010. With increasingly high levels of real estate lending as well as runaway consumer prices, officials chose to raise interest rates. They also developed restrictive monetary policies such as hiking the amount of dollars that banks are required to keep in reserve.
The result? Inflation declined, but so did GDP as well as manufacturing. Indeed, the Chinese manufacturing sector contracted for the first time in three years last month.
Nevertheless, across-the-board economic contraction is not in the cards. With China's CPI dropping to its lowest level in years (4.2%), Chinese leaders have been signaling their conviction to stimulate growth. Their first easing of bank reserves on Nov. 30 will be followed up by additional stimulative measures well into next year.
Now investors wonder what the fate of Emerging Market ETFs will be in 2012. From my vantage point, as long as we do get a bit more clarity out of Europe, EM ETFs should provide plenty of portfolio pop.
Here are 3 things to consider:
1. Trailing P/E Ratios. At the time of this writing, significant countries in the MSCI Emerging Market Index -- Brazil, China, Taiwan -- each have P/Es below 10. I've already
documented how the MSCI China Index has fallen below 10 on 3 occasions
in the last 20 years, and purchasing at this level has been synonymous with rewarding returns. What's more, the trailing P/E for the MSCI Emerging Market Index currently sits near five-year lows relative to the trailing P/E for the S&P 500.