Terry Smith is dubbed Britain’s Warren Buffett but as even he winds up his trust… should YOU steer clear of emerging markets too or is it time to buy?

By ROSIE MURRAY-WEST, FINANCIAL MAIL ON SUNDAY, 2 October 2022:

Making money from emerging markets is not easy. Even veteran investor Terry Smith, hailed as Britain’s Warren Buffett, has announced he is winding up his fund that operates in the region, because it has ‘underperformed expectations’…

But these fund disappointments do not mean that emerging markets are lacking in investment opportunities. Many experts believe they have the potential to outperform developed markets over the next few years.

However, investors may have to accept a lot of stomach-lurching volatility along the way – and be prepared to work to seek out the best opportunities.

So what exactly are emerging markets?

That is the name given to fast-growing economies yet to reach their full potential. Like many labels put on our investments, the term is one of convenience that conceals a huge spectrum of markets.

There are as many as 24 countries in the main index of emerging markets – as diverse as South Korea, China, Brazil, Mexico, Thailand, Vietnam, India and South Africa.

Should investors follow Smith out of the door?

Investing in emerging markets is generally seen as riskier than in so-called developed markets. In many cases, the accountancy and governance may be less reliable. Therefore, while there is often opportunity for rapid growth, there is plenty of volatility along the way.

Emerging markets have had a very difficult year, with stock markets falling in value by 25 per cent overall in the past year. By comparison the S&P 500 Index (a barometer of the health of big US companies) fell by 11 per cent.

Funds that contained Russian investments have been particularly hard hit after global sanctions rendered them all but worthless…

A ripple effect from the war has affected other markets, by pumping up the cost of energy and food. ‘It has driven Sri Lanka to the point of bankruptcy,’ says James Carthew, investment trust expert at data group QuotedData.

Read more here