Investing: Are emerging markets too risky?

Emerging markets may be “heading for trouble,” said David Ignatius in The Washington Post. “International economic fads are always suspect, up or down,” but the data these days may be a red flag for investors looking to make money in places like Brazil, Russia, India, and China—the so-called BRIC countries. The International Monetary Fund predicted last week that economic growth will slow this year and next in China, and stock indexes for emerging markets have begun to drop. Even the economist who coined the term “emerging markets” has issued “several blistering assessments recently about the former rising superstars.” The bellwether here is China, with its “unbalanced growth; its demographic decline, with fewer young workers resulting in higher labor costs; its potentially deadly pollution problems; and its financial weaknesses.” On the plus side, “as global competitors stumble, the United States has been picking up speed.” Those are all reasons why investors looking to enter the next emerging market might want to stay close to home instead.

Or look to Europe, said Robert Frank in CNBC.com. According to a new study from the Spectrem Group, the Old World is where “the rich are more likely to invest” this year. Most millionaires say they “are generally cautious about investing abroad” at all, however, with 58 percent saying they won’t invest outside the U.S. Nor are they taking risks with their domestic investments. That’s a wise approach, said Kenneth Rapoza in Forbes.com. “Broad strokes in emerging markets will no longer be prudent.” India and several countries in Southeast Asia face upcoming elections, which “will likely increase uncertainty and market volatility.”

This pullback was bound to happen eventually, said Michael Schuman in Time.com. The tapering of the U.S. Federal Reserve’s bond-buying program is scaring investors away from risky plays, but much blame can fairly be directed at the BRIC countries themselves. “In New Delhi, political bickering tanked efforts to further the liberalization that had set the economy free and sparked rapid development.” Brazil is losing ground because of its creaky bureaucracy and burdensome taxes. And China’s leadership “will have to take on China’s entrenched interests—state-owned enterprises, a powerful bureaucracy—to implement the bold reforms” needed for strong growth. By now the emerging world should know the truth: that “even those economies with the brightest prospects and biggest advantages can’t continue to grow without timely reform and bold political action.”

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