Readers Write About Emerging Markets

Back to the Global Portfolio mailbag to look at investing in emerging markets, and how to get information about international markets.

After reading my article last week on emerging market debt, one reader asks:

Do "analysts like emerging market debt because of high oil prices, not in spite of them? Isn't the asset class partly a commodities play? (Where was the oil price in 1998?) The outperformers are Russia, Ecuador, Venezuela and Mexico and all are oil exporters, but are they all now paragons of economic policy-making?"

The reader is absolutely correct to point out the key role that high oil prices are playing in bolstering the attractiveness of emerging market debt. Revenue from high oil fills the coffers of the governments of the oil exporters, making it easier for them to pay their debts, which often results in a higher credit rating. That, in turn, increases demand and raises the price of sovereign debt. If the price of oil collapses, the picture would be quite different. However, because most analysts seem to believe that oil is not going to go below, say, $30 a barrel, anytime soon, the case can be made that emerging market debt offers a promising return for at least the next few months.

In addition, economic policies in many emerging markets are showing hints of improvement. In fact, Mexico, with its free-market and open-trade policies, is one of them. The others you mentioned could hardly be called paragons of economic policy making. Let's hope they remember the cliche about fixing your roof when the sun is shining.

Moving on to another way to invest in emerging markets, Brian Nash asks, "If someone made you name the shrewdest, best manager or fund family specializing in emerging markets funds, who would you pick?"

One way, of course, to answer that question is to look at a fund's performance over a longer period, not just the past few months or year. Overall, the best-performing emerging-market mutual fund for the past five years has been the (NAEIX Quote)Nicholas Applegate Emerging Century One Fund with annualized returns of 7.16% over the period. However, it is an institutional fund which requires a $250,000 minimum investment. The best performer within the reach of most investors is the (NECAX Quote)Pilgrim Emerging Countries Fund, which requires a $1,000 minimum investment and has annualized returns of 6.37% over the past five years.

Those returns are still well-below those of domestic funds over the same period. For example, the top U.S. technology fund over the past five years, the (TCFQX Quote) Firsthand Technology Value Fund has annualized returns of 53.23%. Of course, the period includes the financial crises of 1997 and 1998 when emerging markets tanked, and are not indicative of how the funds may perform over the next five years.

But investing by looking in a rear-view mirror is only part of the picture. With respect to the quality and shrewdness of fund managers, I would be interested in hearing from readers. Please send your experiences regarding emerging market or international fund managers to me at [e-mail]

Getting good information is one of the most difficult parts of international investing. Peter Dammann asks, "As a Lycos(LCOS Quote) shareholder, I am probably going to choose to take common shares of Terra Networks(TRRA Quote), rather than ADRs. Do you know of a Web site that will give me Terra common share quotes from the Spanish exchange, rather than ADR quotes?"

The U.K. version of Yahoo! Finance has that information. (Click here.) The listed price is in the euro, but the site also provides a currency conversion feature. Finally, in a column last week a reader asked about getting information about two Indonesian companies that are traded on the Jakarta Stock Exchange. Ken Read wrote to mention that www.indoexchange.com has that information. Ken, thanks for bringing it to our attention.