Thursday, August 7, 2008

Is It Time to Invest in South Asia Again?

With political instability, rising inflation and economic slowdown, many investors are fleeing South Asian markets. India's Sensex is down 48% and Pakistan's KSE-100 is down 34.6% this year. Most of the rest of the world's emerging markets dropped, too— Shanghai lost 44 percent, Russia, down 25 percent, and Brazil, 36 percent. They're fighting inflation and their slingshot growth has eased. To investors, it looks like a no-go zone.

As far as Pakistan is concerned, a little less than seven years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks. In hindsight, they should have. As Western governments have fretted about the resurgent Taliban or Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 8-fold, in spite of the recent troubles and KSE-100's major decline this year.

Is it time again for a counterintuitive idea? Put money gradually into emerging market mutual funds over the next six to 12 months, says analyst Peter Perkins of BCA Research in Montreal, according to Newsweek. These stocks aren't optional anymore. Anyone who sees the future has to own them.

As Jane Bryant Quinn, a popular personal finance adviser, puts it in Newsweek: Put aside the idea that developing countries live on the fruits of cheap labor and raw materials. On the contrary, they're home to world-class corporations with innovative management, superior technology and global reach. To mention just three: Embraer, the top small-jet manufacturer (Brazil); Samsung Electronics, a worldwide brand (South Korea), and Infosys Technology, for IT services (India). "The countries in the former Third World will become the dominant economies of tomorrow," says Antoine van Agtmael, president of Emerging Market Management and author of "The Emerging Markets Century."

Jane Bryant Quinn concludes her recent Newsweek column with the following advice: If emerging markets are good for geezers, where have the crazies gone? To funds invested in "frontier markets": Nigeria, Kazakhstan, Pakistan, Croatia and the Arab Gulf states. Today, these stocks ride the political winds. In the future, they'll be in our children's IRAs.

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