I'm passive investor with 5% of my portfolio in Emerging Markets (index). I've been thinking lately that it's not really worth it to invest in these stocks. Emerging market economies may indeed enjoy higher level of GDP growth than developed economies, but their corporate governance is substandard, corruption may be rampant, and the rule of law inconsistent. The result is that much of that growth is captured by insiders rather than by the public investors at large.
While the market is undoubtedly aware of the problems and presumably takes them into account when setting prices, I'm not confident the market can accurately price in unknown information (for example, we don't really know what goes on in China). Emerging Mkts is pehaps one of the few areas where active management makes sense. Indexing assumes the market is efficient, that assumption may not be true in some emerging markets.
I feel index investors are better off focusing exclusively on the US and other developed markets where we will get a fair shake. Large corporations like MCD and Coke already have exposure to emerging markets, and unlike locally traded shares, their financials are not suspect.
Submitted March 11, 2021 at 06:03PM by wcbhkids https://ift.tt/3tcvmFK
