Why investing in developed markets can be risky.

Developed markets like the US and the UK have long been the powerhouses of the global economy.The entire US market encapsulates almost half of the world's liquidity.Therefore movements in the US economy can really affect global markets on the whole.With some of the major companies in the US like Apple,Microsoft,Google and Coca-Cola having a major chunk of their business right here in Asia, it reflects Asia's growing inflence in the global economy.

Asia's biggest economies like India and China have long been soughted to lead Asia and infact the world to a more diverse global economy. An economy that is not only based on the performance of the developed markets.

China's urban population is ever increasing. Wages among Chinese labourers have significantly increased due to a higher standard of living. For the near term,businesses are looking into other asian countries particularly in the South-East Asian region. Countries like Thailand,Vietnam,Cambodia provides greater opportunities to grow in the long term. These underdeveloped countries might attract businesses who are finding it costly to do business in China. That's not to say that China are not competitive anymore. Its growing expertise in many sectors of the economy have threatened the monopoly that some developed countries have enjoyed for the last century.

Although asian countries have had their greatest run after the last recession. Monetary policy tightening and hikes in interest rates can be expected in 2011. However, this does not have to make investors cringe at the prospect of its effects. Asia still have an enormous capability to grow in the long term. Debt to GDP ratios of these developing countries are significantly lower than that of the developed markets.






As in the Bar chart above,developed countries like the UK and the US are having more debt than their asian counterparts. Although the outlook of developed markets are relatively bullish at the moment, one must not forget its longer term effects.

Are we going for a bull run this year?

The Dow Jones Industrial Average has proved to be resilient amidst its weak employment numbers. Its consumer confidence has risen to its 3-year high despite the rise gasoline prices. The DOW sees a strong support level at 12000pts.

Markets in Asia experienced a minor sell off for the whole of February. The sell-off especially in the JCI(Jakarta Composite Index) indicates a correction after going parabolic in 2010. Concerns of monetary policy tightening in China have made investors worryand global commodity prices have soared to all time highs. Inflation is seen looming across Asia and the emerging markets.

Heavy outflows in excess of $60 billion were reported to be exiting the emerging markets and more funds were seen entering the developed markets. Investors believe that Asia have had their good year back in 2010 and after the strong rebound from the developed countries, investors have flocked to the developed economies albeit at a slower rate.

Will Asia prove to be an excellent choice for investments this year?
Well,the governments have to do well in stemming the threat of inflation before it becomes too late. Asian equities are still looking at fair value. Price to earning ratio for the STI stands at 11.2 as of last week. If investors are looking for investments that yields returns for the long-term, then Asia still has the legs to go further.

In the MENA (Middle-East and North Africa) countries, the unrest developing in Libya and the possibility that Saudi Arabia following suit might cause crude oil prices to soar at unbearable levels which might threaten the global economic recovery. The extend of its impact can be seen with oil prices hitting over $100/barrel last week. Supplies and oil inventories have been hit badly causing the equity markets to suffer huge losses.

If these issues are not contained swiftly, the impact might dampen the bull run that we have had for the past year. Growth is expected to slow down a little however this does not mean that we cannot see a bullish year ahead. Slow growth is still growth and therefore we can expect that the market needs to digest the various stimulus being fed into the world economy after the recent recession.Factor that in and we might see positive results in the near term.

The prophecy "Sell in May and Go Away" should not deter investors from investing and instead profit from it when the opportunity presents itself.