Emerging Markets: the Coming Bounce

Any opportunity in the banking sector?
Korea is worse off, but banks in emerging markets are not as bad as banks in the U.S. and other developed economies because the savings rate is higher. Plus, until about 10 years ago, credit wasn't available. We've seen loan growth from 25 to 30 percent and, in some areas, as high as 50 percent—a lot of it mortgage and auto lending.

How optimistic are you about frontier markets?
Because a lot of frontier markets produce oil, they have the capacity to deliver growth in the years to come as global economies rebound from this recent slowdown. They're also working to diversify their economies. Countries in the Middle East, for example, have begun acquiring agricultural land in Asia and South America as an investment.

Where do you see emerging markets in a decade?
Higher than where they are today in terms of valuation, since present valuation—at least on a trailing basis—is the lowest it has been since I began investing in the asset class in 1988. China, Brazil, and India will be much larger economies, and emerging markets will continue to deliver above-average economic growth. Emerging-market currencies will be stronger vis-à-vis the U.S. dollar. America will have a higher percentage of its population entering retirement years, so the consumption pattern in the U.S. will change. Meanwhile, emerging markets, with their younger populations, will experience increased consumption that will fuel economic growth in their economies—but there could be higher inflation worldwide at that time.