Brave the last frontiers
Rachel Fixsen on whether to invest in Novomoskovskbytkhim
Saturday 29 March 1997
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.
Ukraine crisis is Russian roulette for investors
Make money as a mystery shopper
Investment Insider: Poundland may not be cheap when it floats
How to start your own internet business
The whole truth about legal fees: Conveyancing can knock a big hole in home-buyers' finances. To get the best deal you must cross-examine solicitors about their charges, says Sue Fieldman
- 1 Bad cattitude: Family call police after crazed and 'hostile cat with a history of violence' attacks baby before attempting to 'flee custody'
- 2 Family forced to flee home after discovering 'terrifying' nest of spiders in bananas
- 3 First Kiss: Filmmaker gets 20 strangers to make out on YouTube with awkward results
- 4 Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
- 5 Bob Crow death: 'Admired by his members, feared by employers' - Tributes pour in for RMT union leader and 'working class hero' Bob Crow
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Exclusive: Impact of immigrants on British workers ‘negligible’
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
The quiet diplomat: Catherine Ashton - recognised and admired in all the world’s troubled countries, yet ridiculed at home
Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
iJobs Money & Business
£1000 per month: Inspiring Interns: The company works with Tier 1 FTSE 100 Ban...
£35000 - £60000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£60000 - £80000 per annum + BONUS + BENEFITS: Harrington Starr: A top, City ba...
VOLUNTARY ONLY - EXPENSES REIMBURSED : Reach Volunteering: Fantastic opportuni...
Day In a Page
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill