Emerging Markets Not Done Yet

Since 2002, foreign stocks have trounced U.S. stocks. Not this year. The European markets have done just as badly as the U.S. markets. Many of the emerging markets - India and China, for example - have done a lot worse.

Is the bloom finally off the rose? Some say the emerging market countries have great economic growth and fundamentals that are being ignored. Others say their markets are valued almost as high as the U.S. markets. They’re not a great buy anymore.

So, who to believe? Here’s my take. Many of these countries have economies that are still expected to grow two or three times faster (or more) than that of the U.S. or Europe. And companies in these countries are also expected to grow earnings much faster than American or European companies. At the same time, their economic and banking systems are becoming more open and transparent and increasingly subject to the rule of law.

Market growth is never smooth. There are bound to be breaks in the climb. We’re in one of those breaks now. It shouldn’t last. The emerging markets still have a greater upside than those in developed countries. And the iShares MSCI Emerging Markets (EEM) ETF is probably the best way to invest in them.

[Ed. Note: ETR’s Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]