Profiting from Emerging Markets

The emerging market story is certainly seductive. It is not just the investment banks of Wall Street that hear the siren's song. Famous academics do as well. A good example is Professor Burton Malkiel, author of the legendary A Random Walk Down Wall Street, first published in 1972 and now in its 10th edition. He is Professor Emeritus of Economics at Princeton University and a leading proponent of the efficient market hypothesis, which since its publication has shaped much of the thinking about investments.

In an essay published in the Financial Times in September 2011,¹ Professor Malkiel exhorted his readers to allocate far more of their assets to emerging markets. He believes that an examination of most portfolios would indicate that they are “severely underweighted to the most dynamic growth economies of the world.” He has three excellent reasons for this hypothesis. The first is that the developed world has too much debt. Second, the developed world is too old. Third, the developed world has too few natural resources.