Author: Gordon Platt

Foreign institutional buyers who purchased emerging market equities to realize value from long-term investments are not exiting their positions, despite increased volatility in global markets, according to a leading broker in the markets.

There has been no increase in risk aversion in emerging markets as a result of the subprime lending fallout in the US, says Jonathan Auerbach, co-founder with David Grayson of New York-based independent broker-dealer Auerbach Grayson, which has a network of partners in 104 countries.

“It used to be said that when the US catches a cold, the rest of the world catches pneumonia,” Auerbach says. “That just isn’t the case anymore.” So far this year, the Shanghai Composite index is up almost 100%, while the market in Serbia is up 75%, and Peru is up 61%, he says. “There will always be volatile days because of the thinness of some of the emerging markets,” he explains. “However, long-term market positions have not been compromised.”

Most of the problems with valuing and creating asset-backed securities reside in the US and are not particularly affecting the rest of the world. Emerging market valuations are so low in terms of relative price-earnings ratios compared with developed markets that EM equities are still cheap, he says.

Gordon Platt