The Jonathan Davis Column: Emerge from the global gloom - Life and Style - The Independent

The Jonathan Davis Column: Emerge from the global gloom

As Professor Malkiel points out: `The emerging markets road to riches is not for the faint hearted'

THE SECRET of successful investment, as has often been observed, lies in avoiding doing what everyone else is doing: by definition if you do the same as everyone else, you will end up with a mediocre result.

This is sound advice in theory, but awfully difficult to follow in practice. As Keynes perceptively observed more than 50 years ago, many people would prefer to fail conventionally rather than succeed by doing something out of the ordinary.

Granted the importance of having a contrarian streak, is the place to be investing now in emerging markets? A quick scan through the statistics tells a painful story of decline over the past year. A glance at the share price history of Templeton Emerging Markets, oldest and largest of the specialist investment trusts in this area, shows what a volatile ride this particular sector has been over the last 12 years.

Despite the flight to quality by investors all over the world in recent months, one man who thinks that emerging markets are the place to go hunting for bargains these days is Professor Burton Malkiel of Princeton University in the United States. As anyone who has read his classic book, A Random Walk Down Wall Street, will know, Professor Malkiel has done as much as anyone in the last 20 years to demystify stock market investment.

He is a distinguished academic who - unlike many of that breed - has not been afraid to put his money where his mouth is. Although a firm believer in efficient markets, and hence one of the earliest advocates of the merits of index funds, he was also one of the first to predict that the Eighties would be the start of a major boom period.

Now, like many other commentators, Prof Malkiel is wary of current valuation levels on Wall Street and in other major equity markets. But, as I discovered when I caught up with him the other day, he is positively gushing about the potential for emerging markets.

Emerging market funds now offer "the best bargains anywhere in the world", he says confidently. "In five to 10 years time, people will look back and say `boy, when those bargains were there, why didn't we do something about it?'."

A year ago, Prof Malkiel was putting the finishing touches to a new book, Global Bargain Hunting, written with a colleague at New York University, which made the case for buying shares in emerging markets even then. That, of course, was before the dramas of the past year which have sent most markets in Asia crashing and precipitated Alan Greenspan into what looks like mildly desperate measures to prevent the world succumbing to "the worst financial crisis since the War".

Prof Malkiel makes no bones about the fact that the current crisis has badly damaged investors' confidence in the emerging market concept. But his view is that the recent turbulence is merely a demonstration of the fact that the risks in emerging markets are - and always have been - high. These risks are the flip side of the equally high potential rewards to be earned from investing in what have been some of the fastest growing and vigorous economies in the world. "This road to riches," he writes in his book, "is not for the fainthearted."

The basic arguments for emerging markets have always been that they enjoy higher growth rates and lower market valuations than our own markets. But a crucial third element in the case has always been that they tend not to move up and down in line with the big markets in the USA and Europe. As a result, they offer powerful diversification benefits to anyone with a high degree of stock market exposure.

Even this hardened optimist, it is true, does harbour some doubts about the case for emerging markets. Malaysia's decision to reimpose capital controls is "a worrying development" which, if echoed elsewhere, could undermine the attractions of emerging markets for investors. His book chronicles in detail the threat posed by the lack of enforceable legal constraints on managements and governments in many emerging market countries.

The bottom line, however, says Prof Malkiel, is that the best response investors can make to the current turbulence in financial markets is to increase rather than reduce their diversification across different types of asset. Emerging markets have an important part to play in that equation.

The current widespread gloom is an unprecedented buying opportunity. "It is the nature of markets to go to extremes. If we weather the storm, the bargains will be better than ever."

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Property
Home body: Badger stays safe indoors
property
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
Life and Style
ebooksFrom the lifespan of a slug to the distance to the Sun: answers to 500 questions from readers
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    HR Manager - Kent - £45,000

    £40000 - £45000 per annum: Ashdown Group: HR Manager / Training Manager (L&D /...

    Senior QA Engineer - Agile, SCRUM

    £35000 - £50000 per annum + benefits: Ashdown Group: Senior QA Engineer (Agil...

    Marketing Executive - West Midlands - £28,000

    £26000 - £28000 per annum: Ashdown Group: Digital Marketing Executive (SEO, PP...

    Retail Business Analyst

    £40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Our retail client ...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week