Investments

Central Banks May Undermine Long Term Investment

Central bank policies in developed economies are failing to inspire investors who are looking to emerging markets for more robust long-term returns, says an industry expert.

Jan Dehn, head of research at investment firm Ashmore cites US Federal Reserve chair Janet Yellen stating she would not raise interest rates to control bubbles and the European Central Bank buying debt from weaker Eurozone nations as two examples.

Ashmore’s view is the central bank action could over value some markets in favour of speculators that could undermine the markets for long-term investors.

“Many European bonds are already considered in bubbles,” said Dehn. “Although many emerging markets are in trouble for around 10% of the time, they are still a safer long term bet than the US or the Eurozone.

“That doesn’t mean risk management goes out of the window, but emerging markets may offer a better place for long term investors.”

Thai markets stabilise

Stocks and shares in Thailand have responded well to the recent military coup – rising more than 5% since the army took power in May.

Calm in the markets suggests investors expect the military to stabilise the economy.

The view, says Far East investment expert Mike Kerley of Henderson, is supported by farmers receiving huge payments of debt owed by the government and plans to extend VAT and reduce corporation tax.

Just how long the honeymoon will last is the big question for investors.

The military and politicians want to see a return to a democratically elected government within 15 months.

Kerley feels some economic problems need resolving by market correction after years of distortion and propping up by successive governments.

Energy costs are a real problem – especially as supplies are disrupted by continuing troubles in the Middle East and North Africa.

Thailand also has a massive shadow economy fuelled by illegal immigrants setting up businesses.

“The economy certainly faces challenges, but the will seems to be there to make the right decisions,” he said. “For this reason, we think investors should certainly keep at least a weather eye on what is happening in Thailand.”

Frontier market domination

The latest MSCI frontier markets index is dominated by just eight countries.

The MSCI tracks emerging and frontier markets with separate indices. The frontier index has soared by 17% already this year – compared with a 6% gain for emerging markets.

The top eight countries account for 79% of the value of the index – they are: Argentina, Kazakhstan, Kenya, Kuwait, Morocco, Nigeria, Oman and Pakistan.

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