Emerging markets haven't escaped the pain that credit-related and other woes have caused the U.S. and European markets in recent months. Indeed, despite the hopes that the developing and developed worlds had decoupled from each other and that local economic growth would make up for sluggishness in the United States and Europe, most emerging markets have declined sharply since the current troubles began in late October. Diversified emerging-markets funds have lost 15% since Nov. 1, in fact, while Latin America offerings have dropped 10% and Pacific/Asia ex-Japan funds have plunged 23%.
Meanwhile, sharp sell-offs like this are fairly common for emerging markets. Diversified emerging-markets funds have suffered double-digit losses in 26 rolling three-month periods during the past 15 years, whereas Latin America offerings and Pacific/Asia ex-Japan funds have incurred losses like that slightly more often over the same period.
The painful short-term losses and extreme volatility associated with emerging markets no doubt make many conservative investors uncomfortable. But most foreign large-cap funds devote around 10% of their assets to emerging markets, and many prominent and successful ones--such as Harbor International (HAINX) and Masters' Select International (MSILX)--normally invest significantly more in such markets. Consequently, investors who want to avoid emerging markets need to choose their core international holdings carefully, as do those investors who wish to limit their exposure to such markets and get all of it through pure emerging-markets funds run by specialists.
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William Samuel Rocco does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.