Here we go again. In just about every recent period of market volatility, emerging markets - for all their vaunted growth credentials and sound finances - have slumped by more than developed markets. This one is no different; the MSCI Emerging Markets index has fallen 24 per cent so far this year compared with the FTSE 100's 16 per cent fall.
There are several culprits. There are concerns about whether growth rates in China and India can be maintained, especially the former, where the government is cracking down on property speculation. And it's hard for export-driven economies to prosper when their main customers - the US, Japan and Europe - are in the doldrums. "Hot money" is being withdrawn; just look at Anthony Bolton's
And then there's corporate governance, neatly epitomised by events at
"Heard it all before" is the reaction of many emerging market bulls, especially when it comes to China, which has defied many 'hard landing' predictions. Standard Chartered's China economist Stephen Green notes that China's manufacturing indices remain in growth territory despite their recent slowdowns, and points out that inflation is showing signs of easing, which in turn would allow tight monetary policy to be loosened.
Goldman Sachs also tried to sooth nerves about emerging markets this week: "The events of 2007-08 showed us that emerging markets economies, and by extension the world economy, can be relatively resilient to a slowdown in developed markets economies, as long as they are facing simply the transmission of real economic weakness, and not financial stress either to trade channels or their own banking systems."
Emerging markets are more volatile than developed ones, and stock-specific risks are higher still. But the long-term record of - and prospects for - emerging markets remain compelling, and all investors should be exposed to them. For emerging market fund choices, see our new top 100 funds guide at http://bit.ly/Top100Funds.