Emerging markets got big fast. So big, in fact, some analysts are comparing it to the tech-stock bubble of the late 1990s, which swelled and then burst, taking many investors' dreams with it, the Associated Press reports.
Until late May, emerging markets were a veritable money magnet. For example, the Morgan Stanley Capital International Emerging Markets Index, which tracks 25 countries, surged 35% in 2005, versus a 5% growth for the Standard & Poor's 500.
"It was very similar to the Nasdaq in the winter of '99," said Quincy Krosby, chief investment officer for The Hartford Financial Services Group, an insurance conglomerate based in Hartford, Conn.
People put their entire portfolios in emerging markets, she said, ignoring stagnant domestic funds. In fact, in the first quarter of this year, world equity funds registered inflows of $79.7 billion, compared to $39.89 billion for domestic finds, according to research from the Investment Company Institute. "A lot of money came in at the top of this peak," Krosby noted.
Adding to the fervor were a number of high-profile, international initial public offerings, such as Baidu.com, a Chinese language search engine, and the $11.2 billion Bank of China Hong Kong IPO, the fourth-largest in history.
Then, between May 9 and June 13, the sell-offs started, with the Brazilian market dropping 29.59%, stocks in India plummeting 32.44%, and the Mexican markets tumbled 24.72%, according to Birinyi Research, a stock research firm based in Westport, Conn.
Tobias Levkovich, chief U.S. equities strategist for Citigroup pondered, "If 2000 was the peak of the U.S. technology bubble, could this signal a comparable peak in non-U.S. markets?"
Since 2004, U.S. investors, individuals as well as hedge funds, invested $500 billion in emerging markets, according to Charles Biderman, chief executive for TrimTabs Investment Research.
"If the money stops going offshore and into U.S. stocks, this could be the hot market going forward," he said. "We hope. Fingers crossed."
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.