Emerging Markets Funds-Emerging Markets etf

It is possible that over the next two years that the P/E ratio of emerging markets will go up and we will reach excessive valuations. In essence  liquidity will continue to flow to emerging markets, sending up the emerging markets ETF indices with little discrimination.

The liquidity that has pushed into emerging markets over the past year, sending shares soaring most likely will continue. Most emerging market indices are up 60% year to date as a result of this.

This high-beta market will keep going because so far flows of money have been driven by institutional investors and the retail money has not had a big influence yet.

If a bubble started to develop in Asia investors might consider emerging market ETFs to be a better bet than investing in specific emerging market funds.

However not everyone agrees that this will be the case.

The debate rests on a question of liquidity. Will money continue to flow to emerging markets? Jan de Brujin, the newly appointed head of Asian equities at Gartmore, argues that unfortunately the inflows could be coming to an end.

He said: ‘We saw a lot of liquidity last year because there was nowhere else for markets to go. But I think flows will be substantially less this year. Liquidity is definitely coming to an end, we have already seen monetary tightening in China and Australia and we will see it in India.

So what do you do?  You could move to a more defensive footing, less Taiwan, Korea, China and India. and instead look at Thailand and Indonesia where there was not so much liquidity.

So on the whole things are not clear, but if you see a bubble developing, make sure you get out, but perhaps you could ride it for a short while.