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As a result, it's hard to say how emerging markets are performing so far this year -- or to determine whether they, as a group, have decoupled from the U.S. One has to wonder how much longer either will be a meaningful question.
In fact, as discussed in a previous Fund Spy column, many investment professionals already divide the emerging-markets universe into several tiers, depending on each individual country's level of development or risk. In fact, you can't even get investment professionals to agree on whether South Korea and/or Israel are emerging markets.
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Rudolph-Riad Younes, the longtime manager of Julius Baer's international funds, doesn't think Poland, Hungary or the Czech Republic belongs in that camp. Most others, though, do.
The effect on investors
These figures shouldn't be overemphasized, as they reflect just three months of performance. But they do point to truths that can help simplify investment decisions.And this isn't an unusual occurrence. In fact, China's market didn't join the raging rally in other emerging markets until late 2005 or early 2006. Similarly, despite widespread fears, Argentina's financial collapse a few years ago did not have a substantial impact on other emerging markets.
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The developments could make investing easier. In particular, if countries generally considered to be emerging markets continue to differ from one another in performance, you could reduce your concern about your overall emerging-markets weighting. Instead, you can simply let managers of broad-based international funds invest where they feel it most appropriate at the time.
In addition, these trends render the thorny decoupling issue moot. If you aren't allocating a specific amount of money to emerging markets as a group, you don't have to decide how that group will or won't react to U.S. economic trends. With so many other decisions to make these days, we can all benefit from having one less issue to resolve.
This article was reported and written by Gregg Wolper for Morningstar.
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