Market Matters for January 11, 2013
Savant Investment Group | Market Matters for January 11, 2013
Below is a weekly update from our Chief Investment Officer, Dr. Scott Lummer. He co-hosts a seven minute audio segment entitled “Market Matters.” In this week's show, Scott discusses emerging markets, and why investors should consider investing in them despite their higher volatility. We also learn more about the host of the segment, Daphne O’Neal. Also, beginning this week, we are posting written transcripts of each episode along with the audio file (see below). Each week he covers a different piece of investment news focusing on recent events in the capital markets, and relates them to Savant Investment Group’s perspective on investing.
Listen to the Audio
Daphne: My name is Daphne O’Neal, and welcome to Market Matters. This week, we are going to talk about emerging markets. As always, we will talk about this with the Chief Investment Officer for the Savant Investment Group, Dr. Scott Lummer. Dr. Lummer, how are you today?
Scott: I am doing great, Daphne. Before getting started with investment analysis, I have received several questions from our regular listeners about … you. Many noted that a couple of months ago, we changed the format of the broadcast, and you became our host. Let’s talk a bit about your background. Besides asking great questions, you have many fascinating experiences, starting with your education. Please tell our listeners where you studied in college.
Daphne: I graduated from Harvard University.
Scott: And that explains why the questions you ask are much better than the answers I give. Now I know you have hosted radio and video segments in many fields, but you have specific experience in writing articles in financial publications.
Scott: It’s great that you have a lot of familiarity with investments and finance. So now I will turn it over to you. It’s actually much harder to ask questions than to answer them.
Daphne: Last week, in your year-end review, you mentioned that emerging markets were the best performing equity investment group for 2012. Is that often the case?
Scott: Over the long-term we would expect emerging market equities to be the best performing group of investments. They are also the most volatile group of stocks. That means on a year to year basis, they will frequently be the best performing asset class, as they were last year and in 2009. We would also expect them to be them to frequently be the worst performing asset class, as they were in 2011.
Daphne: What precisely are emerging market stocks?
Scott: They are stocks of companies domiciled in countries that are classified as an emerging economy, instead of being a fully developed economy. Often that definition is trapped somewhat by legacy. In the 1970s, when markets were first classified by economists as developed and emerging, the world looked different than it does today. Much of the world was still under communist rule – obviously a country had to have a free flowing capital market in order to be considered developed, regardless of the size of the economy. Those definitions of what is considered developed and emerging for the most part haven’t changed much since the 1970s.
Daphne: What countries are considered emerging that probably shouldn’t be?
Scott: Let’s start with China. A country that is the 2nd largest economy, and is projected by most economists to eventually to overtake the U.S. in terms of size, probably isn’t truly emerging. When I was there in 1987, there were oxen carts in the main streets of Beijing. That’s no longer the case. Add to that the other so called BRIC or B R I C countries – Brazil, which is the 6th largest economy, India, which is 9th, and Russia, which is 10th.
Daphne: Why haven’t those four countries been reclassified?
Scott: Probably because, outside of size, those four econ