06-Sept-2011 | 18:55 IST | Edited by: Abhishek Sikdar

In times of global recession, investors realign their investment strategies by focusing on markets where returns are higher and also sectors that are safe and high yielding. For example the MSCI Emerging Market Index has lost 10% as against 6.7% decline in S&P 500. But Emerging markets are not totally out of flavor. About $ 12 billion has been pumped in these markets. The investors have also tweaked with the asset classes. For example the hot sectors of the last decade had been parts of the industrial sector that gained from manufacturing boom, energy sector that supplied power to the factories and commodity producers that delivered inputs to the manufacturers. But a gradual shift has taken place. Consumer goods sector is faring well during recession times. In China discretionary goods sector has given 3% returns in 2011. As income levels are rising consumers are spending more and more on consumer goods. China, for example, is on track this year to overtake Japan in the number of vehicles it has on the road, putting it second behind the United States. Arjun Jayaraman, a portfolio manager for emerging markets at Causeway Capital Management said that "This slowdown is based in the developed world. While companies that make and export goods to Europe and the United States will be hurt by slowing demand in the West. A consumer company in India or China that's more dependent on the local markets will be more insulated from the global slowdown.'' Combined, consumer discretionary stocks and shares of consumer staples companies, which make essential goods like food or toothpaste, make up just 16.5% of the S&P Emerging Broad Market Index.

Accordingly, valuations have also gone up. The average P-E ratio for consumer discretionary stocks in the MSCI Emerging Markets Index, for instance, is 13.4, based on the last 12 months of earnings. By comparison, the ratio for the broad emerging markets stands at 10.9. As a result, many strategists say a cheaper and less volatile way to gain exposure to emerging-market consumers is through shares of large domestic and European multinational companies that generate a sizable portion of their revenue from those regions. For example McDonald's, whose shares are up 19% this year, and Colgate-Palmolive, up 12%. These stocks have done so well in this volatile market not only because they're defensive stocks. It also has to do with their long-term growth opportunities in emerging economies.

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MSCI Emerging Market Index: In 1988, MSCI launched the first comprehensive Emerging Markets Index. Since then the MSCI Emerging Markets (EM) Indices have evolved considerably over time, moving from about 1% of the global equity opportunity set in 1988 to 14% in 2010. Today the MSCI Emerging Markets Indices cover over 2,700 securities in 21 markets that are currently classified as EM countries. The EM equity universe spans large, mid and small cap securities and can be segmented across styles and sectors.

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