Emerging Markets May Be Overbought
Wednesday, May 25th, 2011There may be a bubble that is looming in the emerging markets. You are starting to see a slow decline in this sector, and it may continue in the near term. Here are some of the reasons why it may be hard to find good stocks to invest in for this sector now.
The main reason is because there were good stocks at the beginning of this economic recovery. They were showing the strongest growth, and they still are. So if they are still showing stronger growth than the developed world, why are the stocks there more risky now? Well, the answer is simple. It’s because everyone else thought the same thing.
Buying these stocks has been recommended by a lot of analysts as well as publications like Finance World. With the widespread acknowledgement that this may be a good sector to invest in, investors have flocked in en mass, so you might want to watch yourself in case it has been overbought.
This is exacerbated by the fact that growth in the emerging markets may actually be slowing down. You can see this as commodity prices float down, partly due to decrease in demand by countries like China and India.
It is unclear what’s happening in India, but t China is probably sitting on a real estate bubble and inflation. For a country this big where much of the business is done under the table, it will be very difficult to get this under control.
You can see the government already trying by raising interest rates. But it’s like trying to change the direction of the Titanic. It won’t happen until you hit an iceberg and by then it might be too late. So be sure to watch your portfolio, especially if you have invested in emerging markets and get out once you start seeing the decline, because it may not come back up for a while.