Brave the last frontiers

Rachel Fixsen on whether to invest in Novomoskovskbytkhim

Watching your money ride on the investment roller-coaster of emerging markets seems a lot more exciting than holding, say, European government bonds.

Instead of wondering if monetary union will ever happen, you find yourself hooked on the story of a small South-east Asian country whose president has just been arrested. Russia's fight against organised crime takes on a new meaning.

But you can pay a high price if you do invest in emerging markets - the term for developing capitalist economies such as eastern Europe, Latin America and India. Your investment literature will be more colourful, but you may well lose a lot of money if you put it in the world's more exotic corners.

Global emerging markets funds have certainly given a bad deal lately, leading some experts to suggest that their attractiveness may take some time to recover. A thousand pounds invested three years ago has wasted away to pounds 804.68, according to an average for this breed of fund from MoneyFacts, the specialist financial data provider. However, holding out for five years would have given you a respectable pounds 1,936.79.

Real pioneers can risk all and ride on out to the Wild East. The last thing investment trusts such as First Russian Frontiers Trust and the East German Investment Trust will offer you is a guaranteed quick profit - but you could strike lucky. The East German Investment Trust bravely ventures behind the ruins of the Berlin Wall, buying up shares of unquoted paper producers, broadcasters and property businesses. But that's where the fun stops.

Your pounds 1,000 investment would have dwindled to pounds 699.90 over the past six months, and the longer you'd had it invested, the more pitiful it would now be. After five years, you'd have a miserable pounds 377.98, says MoneyFacts.

Irresistibly-named First Russian Frontiers is bound to appeal to the adventurous. This investment trust was launched in 1994 and has assets of over pounds 100m. Investments range from Russia's largest detergent maker - boasting the catchy name Novomoskovskbytkhim - to an Albanian oil extractor.

This trust's shares have seen spectacular returns in the past 12 months, with a pounds 1,000 investment surging to pounds 1,924.24 in this period. In its February report, First Russian Frontiers said the Russian market had continued its frenetic upward trend. But rumours concerning the fate of Prime Minister Chernomyrdin had introduced uncertainty, it added.

You should only put in very small amounts into any emerging markets investment, says Peter Smith, regional director of independent financial advisers Hill Martin. A unit trust purchase plan, which lets your money trickle in, can take the volatility out, he says.

"The growth in these areas is often several percentage points higher than in the developed world," says Fiona Price of Fiona Price & Co, London- based independent financial advisers. "But you could easily lose significant amounts of money. Not just 5 or 10 per cent, but even more," she warns.

Global emerging markets are the best way to invest in this sector, Mr Smith adds. In the past, Hill Martin has used the Schroder Global Emerging Markets unit trust, the Templeton Emerging Markets investment trust and Stewart Ivory Emerging Markets unit trust as recommendations, he says. Schroder's fund is the biggest of its kind in terms of assets, with pounds 266m invested in a Brazilian regional phone company, a Taiwanese life insurer, and a host of others. Gartmore's 10-year-old Emerging Markets Fund, which has shares in firms ranging from Korea's electronics company Samsung to a Peruvian brewery, has also had a disappointing three years.

The idea that emerging markets give good capital returns has proved somewhat illusory over the past few years, admits Philip Ehrmann, head of global emerging markets at Gartmore.

A burst of investor enthusiasm for emerging markets around 1993 left many funds overvalued. "It has taken time for the fundamentals to catch up," adds Mr Ehrmann. These over-high valuations back then, coupled with rallying stock markets in the US and other important markets, have left emerging markets funds in the shadows for the past few years.

Morgan Stanley's Emerging Markets Free Index, which allows for restrictions on foreign investors, fell 25 per cent over the three years to the end of 1996.

But things are picking up and there is scope for a contained revival this year, as long as US interest rates don't shoot through the roof, Mr Ehrmann, says. "Emerging markets should be blessed with good news," he says.

Liquidity can be a problem with marginal markets funds. If the underlying shares are so obscure that it takes time to find a buyer, then investors might in theory have to wait before being able to sell units. Mr Ehrmann says this is highly unlikely to happen at Gartmore, which applies strict capitalisation screens to the companies it invests in.

Be warned, however, before you liven up your investments with emerging markets. "People enjoy the theory but they don't enjoy it when they've got it because they don't make any money," says Mr Smith.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

Simon Read: The point of having protection insurance? The right cover can help reduce your financial concerns at a time of extreme worry

In May Nicola Groves got a massive shock. The 45-year-old mother of two was told, bluntly, that she had breast cancer. "When I heard the words, 'You do have breast cancer and you are going to lose your breast', I felt as if time stood still," she says.

Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along

It's that time again when the media looks back over the past year and forward to the next. I am reminded of an old film, The Day the Earth Caught Fire (1961). Near the end of the film a newspaper prints two headlines – which one it uses will depend on whether the world is saved or doomed.

Sainsbury’s sank 7 per cent to 234p; Tesco fell 3.2 per cent to 180.2p ; and Morrisons dropped 5 per cent to 159.9p

Money Insider: Supermarkets: the real challenger banks

The supermarket banks have always excelled at offering simple, no nonsense products, and savings accounts is another area in which they fare well

Pat and Richard Astbury at their home in Norton Canes, Staffordshire. They have benefitted from the Community Energy Project aimed at helping council tenants with their energy bills. They have had solar panels installed.

Locals in Staffordshire to save hundreds after new council-backed project to install solar panels

The sun is shining on people who struggle to heat their homes and it’s thanks to a sense of community

Gross household debt reached a historic high of around 160 per cent of combined incomes in 2007

Simon Read: Give people struggling with debt some breathing space

Struggling people need help, understanding and forbearance, not ill-thought-out pronouncements

A person walks through the City of London during the early morning rush hour in London

Simon Read: Caught up in the scandal about leaks at the regulator

You won’t find me bashing the banks for the sake of it, but sadly they’ve deserved all the criticism that’s been sent their way in recent years

There were around 750,000 victims of mobile phone theft in England and Wales last year, according to official figures

Money alert: Stolen mobile phones

Gillian Guy, chief executive of Citizens Advice: 'The injustice of shock bills for crime victims must end. The Government must stand up for consumers and cap bills from lost or stolen phones at £50'

Indian workers boil sugarcane juice to make jaggery, a traditional cane sugar, at a jaggery plant in Muradnagar, Uttar Pradesh's Ghaziabad district

Mark Dampier: A hot investment story is taking shape as India lets the light in

Stirring the pot: the Indian Government’s reforms of labour rules offer hope of a brighter future for businesses 

An AA patrol man helping a woman whose scooter had broken down.

Bargain hunter: Whisk up those leftovers instead of just throwing them in the bin

Knight of the road, look out: you’ve got a new rival 

How to raise money for charity this Christmas

There are so many ways you can raise money - and awareness - for charity. Rob Griffin explains how easy it is to donate and reap financial rewards

Simon Read: The Chancellor has stamped on an unfair tax. But will the delight of homebuyers mean misery for others?

Were you surprised by the sudden reform of the rules for stamp duty on property purchases? I certainly was. I've been calling for ages for a change in the tax to make it more fair – and, at a stroke, George Osborne did just that on Wednesday in his Autumn Statement.

Santander, whose ads have been fronted by the Olympic gold medallist Jessica Ennis-Hill, was among the banks where there were potential pitfalls with shared licences

Best savings rates are not all they might seem

Consumers can sometimes think they are shopping around for a rewarding account when in one important aspect, writes Samantha Downes, they are not
The sunlit uplands: switching out of a final salary pension may seem like madness, but there could be cases where it makes sense

Gold-plated pensions – the key to retirement freedom?

With some people are weighing up whether they will be better off cashing in their final salary pension next spring, Samantha Downes asks the experts

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 Money & Business

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there