This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Are Emerging Markets Finally Poised for a Rebound?

NEW YORK (The Street) --- Emerging markets are poised for a better year in 2014 after lackluster 12 months, but fund managers warn against playing one market too heavily. In other words, diversify among a variety of markets and regions.

The MSCI Emerging Markets Index posted a mere 5% gain last year whereas the S&P 500  post a gargantuan 26% advance and Japan's Nikkei posted a rather astounding 52% gain. Fund managers point to increasing diversion between emerging market economies: several carry high debt levels while others are have companies with lean cost structures expected to benefit from stronger earnings growth.

Among the most vulnerable to volatility are emerging markets dependent on developed economies to fund their current account deficits. These include the so-called Fragile Five: Indonesia, India, Turkey and Brazil, South Africa. On the flipside, a cut to bond purchases by the Federal Reserve in December may reduce near-term uncertainty for these markets as the Fed engineers its 'taper timing.' 

Goldman Sachs analysts suggest greater certainty around Fed bond buying intentions will see investors focus on emerging market fundamentals - but note, bouts of pressure from periodic US rate rises.

Henderson Global Investors head of global equities Matthew Beesley said that despite Fed tapering, ongoing stimulus from economies such as Japan would giving a further boost to emerging market equities.

But he warns of a broader shift. "We've been through 10 years where growth was driven by emerging markets expansion and lower cost of production - now developed market growth is accelerating from a low base and emerging market growth is decelerating from a high base," the London-based Beesely said in a phone interview.

Beesely says profit margins are at record level in the US but well short of their peak in Europe and Japan. "European companies have been cost-cutting for 4 to 5 years, and Japanese companies have been doing it for 15 years, so any top-live (revenue growth) surprises will be significant for the bottom line," he said. On the flipside, Beesley is cautious on China, pointing to its credit expansion and large private sector debt to GDP ratio. Overall, he prefers developed to emerging markets. 

Societe Generale strategists are more optimistic. They say emerging markets growth should gather pace early this year, helped by the US driving the global recovery. "Ukraine, Venezuela and South Africa appear to be the most vulnerable while China, the Philippines, and Peru are the least," the bank's head of emerging markets strategy Benoit Anne said in a research note. "China should continue to play an important role - our economic team see the Chinese economy decelerating a bit, but the country should still grow at a sustained pace (7.4% versus 7.6% for 2013)."

Anne says growth in Asia should outpace other regions. In Latin America, he expects Peru, Chile and Colombia will continue to show strong economic performance - partly from the high volumes of exports to Asia - while growth in Mexico and Brazil will remain more modest. He points to Turkey as a stands out for growth performance in the Europe, Middle East and Africa region. "Emerging market fundamentals remain attractive, especially versus developed markets," he said.

The French bank notes that based on IMF forecasts, emerging markets GDP growth should be around 5% in the next two years, well above the 2.1% average expected for developed countries.

-- By Jane Searle in New York 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,952.96 -29.63 -0.17%
S&P 500 1,975.67 -3.24 -0.16%
NASDAQ 4,453.5330 +8.6240 0.19%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs