The Case for and Against Investing in Emerging Markets Now
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,617,056 (+0.24%)       Melbourne $1,000,525 (-0.63%)       Brisbane $1,042,046 (-0.57%)       Adelaide $935,729 (-0.10%)       Perth $926,969 (+0.05%)       Hobart $747,180 (-1.31%)       Darwin $765,724 (+2.11%)       Canberra $969,015 (+0.41%)       National $1,064,466 (+0.02%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $762,768 (+0.19%)       Melbourne $477,217 (+0.91%)       Brisbane $655,017 (-0.25%)       Adelaide $503,220 (+0.13%)       Perth $506,109 (-0.69%)       Hobart $538,123 (+0.07%)       Darwin $392,695 (+2.21%)       Canberra $507,202 (+0.63%)       National $563,984 (+0.16%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 11,236 (+860)       Melbourne 14,447 (+809)       Brisbane 7,855 (+165)       Adelaide 2,564 (+97)       Perth 7,208 (+167)       Hobart 1,205 (+31)       Darwin 179 (+1)       Canberra 1,172 (+79)       National 45,866 (+2,209)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,798 (+348)       Melbourne 6,789 (+167)       Brisbane 1,627 (+44)       Adelaide 378 (-3)       Perth 1,628 (+21)       Hobart 230 (+2)       Darwin 257 (-2)       Canberra 1,162 (+42)       National 20,869 (+619)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $800 ($0)       Melbourne $590 (-$5)       Brisbane $650 ($0)       Adelaide $620 ($0)       Perth $700 ($0)       Hobart $570 ($0)       Darwin $760 (+$10)       Canberra $700 (+$5)       National $682 (+$2)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $600 ($0)       Brisbane $650 ($0)       Adelaide $500 ($0)       Perth $650 ($0)       Hobart $450 ($0)       Darwin $580 (-$3)       Canberra $580 ($0)       National $608 (-$)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 6,578 (-8)       Melbourne 8,259 (-152)       Brisbane 4,220 (-209)       Adelaide 1,555 (-25)       Perth 2,249 (-66)       Hobart 200 (-5)       Darwin 136 (-8)       Canberra 600 (-30)       National 23,797 (-503)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 10,121 (-465)       Melbourne 7,272 (-299)       Brisbane 2,271 (-100)       Adelaide 433 (+6)       Perth 693 (-24)       Hobart 84 (+1)       Darwin 193 (-22)       Canberra 582 (-14)       National 21,649 (-917)                HOUSE ANNUAL GROSS YIELDS AND TREND         Sydney 2.57% (↓)       Melbourne 3.07% (↓)     Brisbane 3.24% (↑)      Adelaide 3.45% (↑)        Perth 3.93% (↓)     Hobart 3.97% (↑)        Darwin 5.16% (↓)     Canberra 3.76% (↑)      National 3.33% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND         Sydney 5.11% (↓)       Melbourne 6.54% (↓)     Brisbane 5.16% (↑)        Adelaide 5.17% (↓)     Perth 6.68% (↑)        Hobart 4.35% (↓)       Darwin 7.68% (↓)       Canberra 5.95% (↓)       National 5.60% (↓)            HOUSE RENTAL VACANCY RATES AND TREND       Sydney 2.0% (↑)      Melbourne 1.9% (↑)      Brisbane 1.4% (↑)      Adelaide 1.3% (↑)      Perth 1.2% (↑)      Hobart 1.0% (↑)      Darwin 1.6% (↑)      Canberra 2.7% (↑)      National 1.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 2.4% (↑)      Melbourne 3.8% (↑)      Brisbane 2.0% (↑)      Adelaide 1.1% (↑)      Perth 0.9% (↑)      Hobart 1.4% (↑)      Darwin 2.8% (↑)      Canberra 2.9% (↑)      National 2.2% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND         Sydney 37.5 (↓)       Melbourne 40.0 (↓)       Brisbane 38.2 (↓)       Adelaide 33.4 (↓)     Perth 45.9 (↑)        Hobart 39.4 (↓)       Darwin 42.4 (↓)       Canberra 40.6 (↓)       National 39.7 (↓)            AVERAGE DAYS TO SELL UNITS AND TREND         Sydney 35.0 (↓)       Melbourne 40.2 (↓)       Brisbane 34.4 (↓)       Adelaide 32.0 (↓)     Perth 46.6 (↑)        Hobart 39.6 (↓)     Darwin 49.6 (↑)      Canberra 49.0 (↑)        National 40.8 (↓)           
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The Case for and Against Investing in Emerging Markets Now

Economic growth is expected to be relatively strong. But these stocks also carry risks.

By Dan Weil
Mon, Jul 5, 2021 10:45amGrey Clock 4 min

Emerging markets stocks have outpaced developed-market shares over the past 12 months, making them a tempting investment option. So is now a good time to take the plunge, or should investors stay away?

On the plus side, economic growth in emerging markets is expected to surpass growth in developed markets in the next few years. And emerging-markets stocks can be useful to U.S. investors for diversifying a portfolio, since they don’t move in lockstep with U.S. shares.

But emerging-markets shares come with higher volatility than developed-market stocks and an array of risks, including political risk, currency risk, liquidity risk—and economic risk, despite the rosy projections. And investors can get exposure to emerging markets more safely with a portfolio of U.S. stocks that includes companies doing business in those markets.

“Investing in emerging markets is a high-risk, high-reward proposition,” says Eswar Prasad, a trade-policy professor at Cornell University. “Many emerging markets have done well growth-wise, and their financial markets have had periods of success, but it tends not to last too long.”

With that in mind, here’s a closer look at the cases for and against investing in emerging markets now.

The Positive Case

The biggest advantage of emerging markets today is their potential for stronger economic growth than advanced economies, investment pros say.

“About 90% of the world’s population under 30 lives in emerging markets,” says Michael Sheldon, chief investment officer at RDM Financial Group, Hightower, a wealth-management firm in Westport, Conn. “This may lead to stronger labor-market growth, increased productivity and stronger GDP and corporate profits over time.”

In contrast, developed countries have rapidly expanding senior populations and low birthrates, which makes it more difficult to find workers to fill new jobs, says Karim Ahamed, investment strategist at Cerity Partners, a wealth-management firm in Chicago. That can limit economic growth.

The International Monetary Fund forecasts average annual GDP growth of 5.5% for emerging markets in 2021-23, compared with 3.5% for advanced economies.

Emerging markets also represent diversification opportunities for U.S. investors. That’s partly because economic growth and financial-market performance in emerging markets are less correlated with the U.S. than advanced economies and financial markets are. In addition, emerging markets give U.S. investors currency diversification, which can be helpful when the dollar is weak.

While investors can gain exposure to emerging markets through stocks of U.S. companies that earn revenue from those markets, those stocks won’t give investors the full diversification benefit, Prof. Prasad says.

The strong economic and corporate performance that is boosting emerging-markets stocks also makes their bonds attractive, says Robert Koenigsberger, chief investment officer at Greenwich, Conn.-based Gramercy Funds Management, which specializes in emerging markets.

Inflation is less of a problem in most major emerging markets today than it has been at times in the past. Also, emerging-markets countries’ external deficits generally have narrowed, or totally reversed in some cases. “This should give emerging-market central banks more flexibility to absorb external shocks and deal with post-pandemic inflationary pressures, allowing them to tighten monetary policy without slowing growth momentum too much,” Mr. Koenigsberger says.

The Negative Case

Emerging-markets stocks are more volatile than those in advanced economies. The MSCI Emerging Markets Index had a standard deviation of 18 over the past 10 years, compared with 14 for the MSCI World Index of developed markets, according to Morningstar. Standard deviation measures volatility, with a higher number representing more volatility.

The factors behind that higher volatility in emerging markets include political risk, economic risk, currency risk and liquidity risk.

And while emerging-markets economies generally have been on a sharp uptrend for years, some also have experienced serious downturns. Russia’s economy, for instance, shrank 2% in 2015, compared with 2.9% growth for the U.S. that year.

Emerging-markets currencies are a double-edged sword, providing diversification but also volatility. “When you try repatriating your investment, everything may be going wrong at the same time,” with the emerging market’s economy, financial markets and currency dropping together, Prof. Prasad says.

A declining emerging-market currency makes an investment less valuable when converted into dollars. And emerging-markets currencies aren’t only vulnerable to trouble in their own country—they also tend to decline against the dollar when the U.S. currency is gaining against other developed-market currencies like the euro or yen, regardless of what’s happening in emerging markets.

Meanwhile, market liquidity isn’t as deep in emerging markets as in advanced ones. “There’s always a risk with emerging markets: It’s easy to bring money in, but not always to take it out,” Prof. Prasad says.

On the bond side, corporate debt outstanding has soared 400% in emerging markets since 2010, Mr. Koenigsberger says. So, plenty of securities are available. But liquidity isn’t just about supply. “Due to fewer banks and smaller market-making operations at those banks, there is insufficient liquidity when investors look to exit the market” in many cases, he says.

Another issue for bond investors: “There are a handful of emerging-market countries—South Africa, Turkey and Brazil, for example—that face high debt levels and large current-account imbalances,” Mr. Sheldon says. These countries are vulnerable to capital flight, which could trigger a plunge in bond prices.

One negative factor for emerging markets in the near term is that countries such as India and Brazil are having trouble dealing with Covid-19. That will likely weigh on emerging-markets stocks this year, Mr. Ahamed says.

How To Invest

For those who want to jump into emerging markets, what’s the best way? Mutual funds and exchange-traded funds will suit most investors better than individual stocks and bonds, because researching and trading individual securities in these markets is often difficult.

When it comes to the question of actively managed funds versus passive index funds, “you can make an argument for active management to provide some downside protection,” Mr. Ahamed says. “But an ETF gives you very broad-based exposure in a way that’s generally cost effective, with lower fees.” Most ETFs passively track a market index.

For bond funds, actively managed is the way to go, Mr. Koenigsberger says. The growth of emerging-markets debt amid continuing economic challenges in many countries puts a premium on active management to sort out the winners, he says. Emerging-markets bond indexes tracked by passive funds are usually weighted by market capitalization, so the most heavily indebted issuers have higher weightings. “Emerging-market debt isn’t an asset class that is suitable for index funds,” Mr. Koenigsberger says.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: July 4, 2021



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Tech Giants Double Down on Their Massive AI Spending

Amazon, Google, Microsoft and Meta pour billions into artificial intelligence, undeterred by DeepSeek’s rise

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Tech giants projected tens of billions of dollars in increased investment this year and sent a stark message about their plans for AI: We’re just getting started.

The four biggest spenders on the data centers that power artificial-intelligence systems all said in recent days that they would jack up investments further in 2025 after record outlays last year. Microsoft , Google and Meta Platforms have projected combined capital expenditures of at least $215 billion for their current fiscal years, an annual increase of more than 45%.

Amazon.com didn’t provide a full-year estimate but indicated on Thursday that total capex across its businesses is on course to grow to more than $100 billion, and said most of the increase will be for AI.

Their comments in recent quarterly earnings reports showed the AI arms race is still gaining momentum despite investor anxiety over the impact of China’s DeepSeek and whether these big U.S. companies will sufficiently profit from their unprecedented spending spree.

Investors have been especially shaken that DeepSeek replicated much of the capability of leading American AI systems despite spending less money and using fewer and less-powerful chips, according to its Chinese developer. Leaders of the U.S. companies were unbowed , touting advances in their own technology and arguing that lower costs will make AI more affordable and grow the demand for their cloud computing services, which AI needs to operate.

“We think virtually every application that we know of today is going to be reinvented with AI inside of it,” Amazon Chief Executive Andy Jassy said on Thursday’s earnings call.

Here is a breakdown of each company’s plans:

Amazon said a measure of its capex that includes leased equipment rose to a record of about $26 billion in the final quarter of 2024 , driven by spending in its cloud-computing division on equipment for data centers that host AI applications. Executives projected it would maintain the fourth-quarter spending volume in 2025, meaning an annual total of more than $100 billion by that measure.

The company—which gets most of its revenue from e-commerce and most of its profit from cloud computing—also projected overall sales for the current quarter that missed analysts’ expectations. Its shares slid about 4% in after-hours trading Thursday. The stock rose more than 40% in 2024 and was up nearly 9% this year before its earnings report.

Jassy said AI has the potential to propel historic change and that Amazon wants to be a leader of that progress.

“AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet,” Jassy said.

Google shares are down about 7% since its earnings report Tuesday, which showed disappointing growth in its cloud-computing business. Still, parent-company Alphabet said it is accelerating investments in AI data centers as part of a surge in capital expenditures this year to about $75 billion, from $52.5 billion in 2024. The spending will go to infrastructure both for Google’s own use and for cloud-computing clients.

“I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down,” said CEO Sundar Pichai .

AI is “as big as it comes, and that’s why you’re seeing us invest to meet that moment,” he said.

Microsoft has said it plans to spend $80 billion on AI data centers in the fiscal year ending in June, and that spending would grow further next year , albeit at a slower pace.

Chief Executive Satya Nadella said AI will become much more extensively used , which he said is good news. “As AI becomes more efficient and accessible, we will see exponentially more demand,” Nadella said.

Growth for Microsoft’s cloud-computing business in the latest quarter also disappointed investors, leaving its stock down about 6% since its earnings report last week.

Meta, too, outlined a sizable increase in its investments driven by AI, including $60 billion to $65 billion in planned capital expenditures this year, roughly 70% higher than analysts had projected. Shares in Meta are up about 5% since its earnings report last week.

CEO Mark Zuckerberg said investing vast sums will enable it to adjust the technology as AI advances.

“That’s generally an advantage that we’re now going to be able to provide a higher quality of service than others who don’t necessarily have the business model to support it on a sustainable basis,” he said.

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