Is it time for investors to return their focus to the West?

YES
KULLY SAMRA

In the aftermath of the financial crisis there is no doubt that Bric countries became a popular choice to diversify investment portfolios. However, the shockwaves from the deepening Eurozone crisis has led some emerging markets stock indices to experience sharp falls since the beginning of March, whereas US markets have remained more stable.

Yet currently, US equities are among the most attractive assets. The recent pull-back has helped to alleviate some of the overly optimistic sentiment indicators that were highlighted earlier this year in the market. Earnings remain healthy, car sales and the housing market have improved, and although unemployment claims are no longer descending at the same pace as we’ve seen of late, the labour market is continuing to heal. Following the easing of Middle East tensions and weaker global growth there has also been a dramatic pullback in oil prices which is crucial to help contain inflation concerns, bolster consumer confidence, and adds to the discretionary spending budget. The continued uncertainty in the state of the global economy and the subsequent market volatility reminds us again how important it is to base investment decisions on a long-term strategy. But for investors looking to re-balance their portfolios for the longer term, relatively speaking the US market is an attractive option as the economy continues to muddle through despite the global economic slowdown. As our chief investment strategist recently asked, is the US the best house in a bad neighbourhood?

Kully Samra is UK branch manager at Charles Schwab.

NO
RICHARD TITHERINGTON

It has been a tough time in the news of late for the Bric economies, with talk of a hard landing in China, political stalemate in India and falls in natural resource prices affecting exporting nations like Brazil and Russia.

In our view, though, these are just bumps in the road, and the long-term investment case for these economies remains intact. All of the Brics are continental-sized economies with large populations that are less affected by negative demographic factors than many more developed nations. One of the biggest points in their favour is the emergence of a middle class who want the same advantages in terms of goods and services as their peers in the developed world. As the focus shifts from exporting cheap goods to greater domestic consumption and investment, the Bric economies will be less exposed to global economic conditions than is currently the case.

This trend will take many years to play out, which is why we remain confident on the long-term investment prospects for the Brics. However, the volatility that has been seen in the major indices of the Brics underlines the need for taking an active approach to investing in these markets. Searching out the companies that will benefit from the economic and social trends is likely to produce a better and smoother return over the long term than simply following an index as it rises and falls.

Richard Titherington is chief investment officer of emerging market equities at JP Morgan Asset Management.