Has there been any slowdown in money flowing to emerging markets?
In the beginning of the year, we (UBS) did see some investors take back some money. But in the big scheme of things, that is really just a squiggle.
Why is that?
We have seen money flowing into emerging markets for the better part of 10 years, and they have outperformed developed markets. I still think we are pretty early in the game.
How should you play emerging markets?
Unlike the 1980s, you have emerging market balance sheets in pristine shape. Governance in several places is improving. We certainly think that direct exposure to emerging markets through China, through Russia, makes a lot of sense. You do have to pick your spots, because asset prices have gone up a fair way. We also have been identifying U.S. companies that have exposure to places like South Asia which will do extremely well.
What about the risk?
From an economic standpoint, the risks are much higher in the developed markets. From a political standpoint, there are greater risks in emerging markets. But emerging markets compensate you for that in terms of higher return. So on a risk/reward basis, I still think that EM equities make more sense. Emerging market debt, I think, has already had its day.