Rationalizing The First Quarter's Emerging Markets Meltdown


Emerging markets had a tough few months; indeed, it was only their second down first-quarter in 10 years by one measure*, for whatever that's worth. But that isn't even the worst of it.

As if to rub salt into the wounds of emerging-market investors – a community accustomed to double-digit annual returns – these losses were racked up in a quarter in which U.S. stocks saw gains in the order of 10%.

Those wounds may sting right now, but emerging markets investors are certain they will emerge victorious from their travails.

"It's a frustration," said Jon Jonsson, portfolio manager of the J.P. Morgan International Currency Income Fund with $1.2 billion in assets….

Yet most fund managers are looking at these trends as a temporary blip. They stand by a view that developing economies are fundamentally healthier than those of the developed world.

"The market is down now, but the pullback is driven by capital flows and investor sentiment rather than fundamentals," said Derrick Irwin, manager of the Wells Fargo Advantage Emerging Markets Equity Fund, which has $1.1 billion under management.

* the JPMorgan Emerging Markets Bond Index, which lost precisely 2.3326%.

Emerging Markets Register Dismal First Quarter [WSJ]