Egypt achieves record primary budget surplus of EGP 629bn despite sharp fall in Suez Canal revenues    Escalation in Gaza, West Bank as Israeli strikes continue amid mounting international criticism    Egypt recovers collection of ancient artefacts from Netherlands    Resumption of production at El Nasr marks strategic step towards localising automotive industry: El-Shimy    Egypt harvests 315,000 cubic metres of rainwater in Sinai as part of flash flood protection measures    Egypt, UNDP discuss outcomes of joint projects, future environmental cooperation    United Bank achieves EGP 1.51bn net profit in H1 2025, up 26.9% year-on-year    After Putin summit, Trump says peace deal is best way to end Ukraine war    Jordan condemns Israeli PM remarks on 'Greater Israel'    Egypt's Supreme Energy Council reviews power supply plans for 14 industrial projects    Egypt, Namibia explore closer pharmaceutical cooperation    Fitch Ratings: ASEAN Islamic finance set to surpass $1t by 2026-end    Renowned Egyptian novelist Sonallah Ibrahim dies at 88    Egypt's FM discusses Gaza, bilateral ties in calls with Saudi, South African counterparts    Egypt prepares to tackle seasonal air pollution in Nile Delta    Egyptian, Ugandan Presidents open business forum to boost trade    Al-Sisi says any party thinking Egypt will neglect water rights is 'completely mistaken'    Egypt's Sisi, Uganda's Museveni discuss boosting ties    Egypt's Sisi warns against unilateral Nile measures, reaffirms Egypt's water security stance    Egyptian pound closes high vs. USD on Tuesday – CBE    Egypt, Colombia discuss medical support for Palestinians injured in Gaza    Egypt, Huawei explore healthcare digital transformation cooperation    Egypt's Sisi, Sudan's Idris discuss strategic ties, stability    Egypt's govt. issues licensing controls for used cooking oil activities    Egypt to inaugurate Grand Egyptian Museum on 1 November    Egypt's Sisi: Egypt is gateway for aid to Gaza, not displacement    Greco-Roman rock-cut tombs unearthed in Egypt's Aswan    Egypt reveals heritage e-training portal    Sisi launches new support initiative for families of war, terrorism victims    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







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How to deal with emerging markets volatility
Published in Daily News Egypt on 11 - 02 - 2014

Since the beginning of the year, emerging markets have been like cats on a hot tin roof.
Hot money is skittering out of foreign markets as countries from Argentina to Turkey have been clawed by economic and political turmoil. But even with heightened concerns about the prospects of developing countries, emerging markets should still be a part of your larger portfolio.
A combination of currency crises and the "taper" of the Federal Reserve's bond-buying programme – possibly resulting in economic slowdowns – have triggered the exodus in emerging markets. More than $12bn left emerging markets stock funds in January alone, according to EPFR Global, with bond funds in this sector losing nearly $3bn last week alone.
While nearly every emerging markets fund has been nicked this year, some funds have been clobbered. The WisdomTree Brazil Real ETF lost 90% of its assets between 28 and 29 January.
A common strategy is to invest in countries that are not part of this route. That means pulling money out of countries like Argentina, Brazil, Indonesia, Turkey and South Africa and moving into countries whose currencies are more stable. While that's easy for institutional investors or those holding country-specific exchange-traded funds (ETFs), it's awfully difficult for individual investors.
One consideration is to find a wider base of smaller, "frontier" countries that are not being impacted by the currency woes or the Fed's moves.
The iShares MSCI Frontier 100 ETF, for example, has 81% of its portfolio in Africa and the Middle East, with only 13% in Asian emerging markets and 4% in Latin America. It's up 1.4% year to date through 7 February and gained almost 24% last year. It charges 0.79% in annual expenses.
How to view the volatility
If you want to isolate trouble spots, you'll have to prune your portfolio to avoid trouble ahead.
The "Fragile Five" – India, Indonesia, Brazil, Turkey and South Africa – are vulnerable because of a plethora of economic and political problems. According to Neena Mishra, director of ETF Research for Zacks Investments in Chicago, you may need to do some incisive sorting.
Mishra says the most troubled countries have high current account deficits to GDP and short-term external debt to foreign exchange reserves ratios – "that is, countries that are dependent on foreign capital and are thus vulnerable to the Fed's taper".
But not all emerging markets are alike. Some have healthy economic outlooks and are worth holding. Mishra likes countries prone to "solid macroeconomic fundamentals, pegged currencies [to the US dollar] and low correlations to developed markets". This group would include the Gulf states, Mexico, South Korea, Taiwan and Vietnam.
While it's tempting to cherry pick developing countries, is it practical to strip out the most troubled countries from your portfolio? Probably not, which means a general emerging market index fund might be too volatile right now – if that's a short-term concern.
A global fund that invests in both developed and emerging markets might fit the bill. The Vanguard Total World Stock Index ETF, invests in a mix of mostly large companies with only about 8% of its portfolio in developing countries in Africa, Asia and Latin America.
Although it's down 3% year to date through 7 February, the Vanguard fund gained 23% last year and costs 0.19% in annual expenses. It holds well-known companies that have a global presence such as Apple Inc, Nestle SA and HSBC Holdings.
Another way of dealing with the uncertainty of emerging markets is to embrace it as the cost of doing business as a long-term investor. Don't bulk up in any one country or region and invest across every continent – if you can afford to take the risk now.
What you will not be able to do with any global or emerging markets fund is to avoid ramped-up volatility this year. To dampen that concern, reduce your foreign exposure to no more than 20% of your portfolio or simply stomach the risk and hold for the long term.

John F. Wasik is an award-winning author of 14 books. Wasik is a personal finance columnist/blogger for Reuters


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