By Hal M. Bundrick
NEW YORK (MainStreet) Emerging market (EM) stocks are the hot sauce of your portfolio. They can provide a quick kick to your performance, but a little can go a long way. And prepare for occasional heartburn. In light of recent, even higher volatility, is it time to put your EM holdings back on the shelf?
"While the outlook for emerging market economic growth remains relatively muted when compared to last year, recent data trends suggest that the slowdown may not be as severe as feared," writes Thomas S. White, Jr., president and chief investment officer for Thomas White International, in an analysis. "Chinese economic growth for the third quarter was robust, when seen in the context of the current global environment. Europe is gradually climbing out of a recession while Japan appears to have succeeded in stimulating its economy through extraordinary policy measures, after a long period of subpar growth and deflation."
But recent economic data trends over the past few months have been pointing to subdued growth, prompting the IMF and the World Bank to lower the current year growth forecasts for the emerging world, according to White.
"Despite the weaker export growth towards the end of the quarter, the Chinese economy expanded at a faster than expected 7.8% during the July-September period," writes White. "Manufacturing activity was also relatively subdued across most emerging economies, especially when compared to the developed world which is seeing acceleration."
Harold L. Sirkin, senior partner and Managing Director for The Boston Consulting Group, says sharp swings in exchange rates, swooning equity markets and slowing growth are warning signs that investors in emerging markets over the past three decades have seen before. And when they flash in a number of economies simultaneously, the outcome often is not good.