The Herald Bulletin

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July 20, 2013

'Big Joe' Clark: Money is on the move in emerging markets

Years ago a bright analyst coined the term BRIC investing. The acronym stood for Brazil, Russia, India and China. Those four nations stood as the poster children for developing nations and thus grabbed the lime light for international investors. As with all things, change has occurred.

Each of these four nations is so dramatically different in terms of economic strength as well as demographic realities that they can no longer be housed in the same sentence. China is now the second largest economy in the world and the Indian Rupee is near an all-time low versus the dollar! Things change.

Investors can be fickle for certain. The discussion of money fleeing the municipal bond market has made many headlines but the changes to international investing seemingly have gone unnoticed. The average 401k participant who rarely looks at changing an allocation could be in for a big surprise.

China is widely held in international funds inside of retirement plans. People need to be aware of what they own at all times. According to a survey of fund managers conducted by Bank of American Merrill Lynch, “Sentiment towards China has continued to worsen. A net 65 percent of regional panelists now see the country’s economy weakening in the next year, compared to a similar majority anticipating stronger GDP as recently as December 2012.”

How does this impact investors? Equities, debt and currencies of Brazil, Russia, India and China are dropping simultaneously as investors scramble to get their money out of emerging markets. About $13.9 billion has been withdrawn from equity mutual funds investing in the BRIC economies. That's 27 percent of the money that has flowed into the funds since 2005 according to a July 10 article in Bloomberg.

When money flees stock prices fall providing huge opportunity for new capital assuming the economies turn around. It is also the perfect set up for a continued loss of capital if things don’t improve. You can make logical arguments for each of these economies – save Russia which I wouldn’t touch with a 10-foot pole – but those arguments can lead to poor investment decisions short-term.

Investing for the long-term is important but when changes come into play that adjusts eight years worth of total deposits you have to take notice and make proactive decisions.

Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at bigjoe@yourlifeafterwork.com or 640-1524.

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