Investors fret on emerging markets and look to U.S.

Fri Apr 20, 2012 7:11am EDT
 
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By Chris Vellacott

LONDON (Reuters) - Argentina's move to seize control of its biggest oil company, YPF, from Spain's Repsol (REP.MC: Quote) has led investors to dust off a near-forgotten accepted wisdom: that emerging markets are not for the faint-hearted.

Indeed, investment managers and private bankers to the very rich are allocating more of their portfolios to developed markets, particularly the United States, as faith in its structural resilience outshines the appeal of developing countries.

"If you are very thoughtful about it and don't want to get caught up in the headlines about the financial crisis dealing the U.S. a fatal blow, people are underestimating the resilience and structural diversity of the U.S. economy," said Sharmin Mossavar-Rahmani, Chief Investment Officer for Goldman Sachs' private wealth management business.

To many, the nationalization of YPF is a reminder investment in countries such as Argentina, Brazil, India or China exposes money to higher political risk, a fact often ignored amid frustration at sluggish growth rates in the developed world.

While Argentina's economic nationalism reminded people of political risk, mishaps suffered by some star investors who dabbled with the exotic have also left them reflecting on higher governance risk in such markets.

Fidelity's veteran British fund manager Anthony Bolton has disappointed investors with poor performances since he started running a China fund in 2010, and has flagged corporate governance in the region as a particular "challenge".

Goldman Sachs' (GS.N: Quote) private client unit has long been a proponent of investing in the United States, arguing the strength of its political institutions, its corporations and levels of innovation give it bright medium-term prospects.

"We like emerging markets but we're not euphoric about emerging markets," said Mossavar-Rahmani.   Continued...