Emerging markets offer growth, debt — and fishmeal

September 20, 2010 at 12:00a.m.

Associated Press

NEW YORK

You can boil down the appeal of emerging markets for investors to three words: growth, debt and fishmeal.

For more than a decade, industrializing countries such as Brazil and China have drawn investors seeking to ride their rapid economic growth. Now, money managers are looking to places that feed these emerging giants — like Peru, the world’s top source for fishmeal, a key ingredient in animal feeds.

Since the financial crisis hit two years ago, cash has flooded into the developing world from those seeking better returns and safety. Unlike the U.S. and other developed countries whose governments borrowed heavily for stimulus spending, countries in South America and Asia have smaller debt burdens along with higher bond yields.

So far, investors’ bets in developing countries have paid off. The MSCI emerging market stock index posted a 78 percent gain for 2009 and is up 3.8 percent this year. Funds that invest in emerging-market bonds returned 32 percent last year. This year, JPMorgan’s emerging market bond index has gained 7.4 percent on price terms alone.

Ask Francisco Alzuru, a money manager at Hans-berger Global Associates, about the popularity of emerging markets and he’ll tell you about fishmeal. It’s essentially anchovy powder. Anchovies are hauled from the Pacific and mashed into a flour, which is used as feed for hogs and fish in China.

To Alzuru and investors like him, fishmeal represents increasing trade within the developing world and economic expansion beyond the so-called BRICs — Brazil, Russia, India and China. Those four emerging-market stars still claim the bulk of investors’ funds, but Peru, Turkey and others have seen a surge in cash.

“You see a growth and consumption story in these countries like you’re seeing in the BRICs,” Alzuru said.

Peru’s economy has grown at an annual rate above 7 percent, a “China-type speed,” fueled by exports of copper, textiles and fishmeal to Asia. That economic growth has given Peruvians higher incomes and more money to spend.