Thailand debacle fails to shake interest in emerging markets
NEW YORK » Investors are still looking to get in on the unprecedented growth of emerging markets, and this week's plunge in Thailand's Bangkok Stock Market did little to shake their resolve.
Wall Street securities firms have made it easy for mom-and-pop investors to broaden their portfolios to include emerging market exposure. Buying into big-growth regions like China, India and even Russia is now as easy as getting a share of General Motors Corp. -- and analysts expect it will get even easier.
"Emerging markets have always been risky propositions, but with risk comes reward," said Anthony Chan, chief economist with JPMorgan's private client services. "Even with what happened in Thailand, this is still a worthwhile investment as part of a broader portfolio, with the understanding that there is greater volatility and risk."
Wall Street got a hard lesson on Tuesday that sinking cash into emerging markets is still a risky business after Thailand had its worst downturn in 16 years. Markets in Hungary, India, Indonesia, Malaysia, Mexico, Poland, Russia and Turkey all lost more than 1 percent as big institutional investors worried a shock might be at hand.
But investors came charging back one day later -- sending the Bangkok Stock Exchange's SET index up 11.2 percent. They brushed off any concern the region could be hit with the kind of beating it took during the 1997 and 1998 Asian fiscal crisis.
Problems in Thailand marked the second time developing markets have been sideswiped this year. In May, rising U.S. interest rates, an erosion in the commodity markets and skyrocketing crude prices caused an emerging-market meltdown.
Despite these setbacks, investors continue to be lured by seemingly untapped opportunities that can reel in some pretty big returns. For instance, the 30 stocks that make up India's Bombay Stock Exchange Sensitive Index is up more than 45 percent this year. Hong Kong's Hang Seng composite has soared 35 percent in 2006.
Compare these returns to the 16 percent jump in the Dow Jones industrials and 14 percent rise in the Standard & Poor's 500 index. Investors are bullish on emerging markets, and Wall Street banks are creating an increasing amount of financial products to satisfy them.
"For a long time, buying into foreign markets has been a mystery to retail investors -- now its something they can do pretty simply," said Lee Kranefuss, chief executive of iShares, a unit of Barclays Global Investors that manages exchange-traded funds.
An ETF tracks a commodity like an index fund but trades more like a stock, rising and falling throughout the day as it is bought and sold. Barclays, one of the industry's bigger purveyors of these financial instruments, manages dozens of ETFs that track everything from China's Xinhua index to the MSCI Brazil index.
Playing emerging markets can be volatile, as proven by Thailand's crash and subsequent rebound. But, Kranefuss suggests spreading out an investment across a country-specific index is a good way for investors to be cautious without knowing details about specific companies.
Along with Barclays, PowerShares Capital Management, State Street Corp., and WisdomTree Investments Inc. also compete in the space.
This past week, Barclays Capital added an exchange-traded note that tracks the Indian stock market. ETNs are senior, unsecured debt securities issued by the London-based bank that are traded like a stock, and where returns are linked to the performance of a market index.
Philippe El-Asmar, managing director and head of investor solutions for Barclays Capital, said the Indian-linked ETN is for people that "understand emerging markets are more risky, but realize its a good way to diversify their portfolio." He said the company has seen increasing interest this past year for financial instruments that track Russia, India and China.
"We're finding ways for them to get easier access," he said.
And more are on the way. The New York Stock Exchange hopes to roll out new ETF products once it closes its acquisition of Paris-based Euronext NV. Shareholders of both exchanges approved the deal this past week, and it is expected to be completed by next year's first quarter.
NYSE Euronext will have 80 of the world's top 100 companies by market valuation. This could quite easily be traded as part of an ETF, and even have derivatives and futures connected to it.
In November, the NYSE's total transaction volume was almost 58.6 billion -- and 8.6 billion of that came from exchange traded funds.