One of my favorite sources of global economic analysis is the International Monetary Fund. Their latest report was interesting. They said that worldwide GDP growth was a very healthy 5% last year, and will be 4.4% this year and 4.5% next year. That sounds really promising!
However, that growth belongs to the "haves and have nots" between developed nations and emerging ones. For developed nations, growth was 3.0% last year and will be 2.4% this year and 2.6% next year, which is pretty anemic.
For emerging nations, growth was 7.3% last year, and will be 6.5% this year and 6.5% next year. What a difference! In other words, those developed nations who have "things" get slow growth. Those emerging nations who are poor and do not have "things" get rapid growth.
The most common reason attributed to this difference in growth is that emerging nations have commodity-based economies, but that is a relatively weak explanation. More likely, this disparity in growth is the result of globalization, which is bringing the blessings of capitalism to the rest of the world. I also think developed nations are too hidebound or too captive of past decisions to make the decisions needed in a 24/7 world, where flexibility is so important.
Whatever the reason, it is clear that most portfolios should have some exposure to the stocks of emerging markets. The question is how much, but that depends on the individual investor.
