Meet the Street: The Outlook for Emerging Markets

With the global economy headed for recession, debt crises brewing in Argentina and Turkey, and a potential military conflict looming in the Middle East, emerging markets might seem like the last place to look for investment opportunities.

Jeffrey C. Hooke Managing Director, Hooke Associates

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Indeed, while U.S. and European stock markets have rebounded from steep losses incurred in the wake of the terrorist attacks, emerging market indices have not.

But as long as you have an appetite for risk and a relatively long-term horizon, now may be the best time to scrounge for bargains, says Jeffrey C. Hooke, managing director of Hooke Associates, a corporate finance consulting firm, and author of a recent book entitled The Emerging Markets: A Practical Guide for Corporations, Lenders and Investors.

Currently, Hooke isn't actively managing money, but he does advise corporate clients on business and investing opportunities in emerging markets. Previously, he served as director of Emerging Markets Partnership, a $4 billion private equity partnership that specializes in the emerging markets of Latin America, Asia, Eastern Europe and Africa. He also was a principal investment officer in the Latin American Department of the International Finance Corporation, the private sector arm of the World Bank.

TSC: In past U.S. downturns, emerging markets have provided a great alternative to U.S. stocks. Why hasn't that been the case this time around?

Hooke: That was a myth. Basically, there were three myths that were perpetuated in the early 1990s about emerging markets. One, that they were countercyclical. The second was that corporate earnings were growing faster than the U.S. companies. The third was that the 25,000 listed securities across emerging markets provided more diversification.

What people found out was that they weren't countercyclical. They moved in sympathy with the United States. And while a lot of the GNP statistics were faster-growing, that didn't necessarily reflect faster corporate earnings, because a lot of these countries were heavily agriculture-based. Finally, while there is certainly more diversification in having more listed securities to select from, you can't easily invest in a lot of them because they just aren't liquid enough. ...