BNY Mellon Investment Boutique Sees Downside to Buying Emerging Markets Indexes

BOSTON & LONDON, May 16, 2011 — A number of macro trends including higher inflation, rising interest rates and vulnerable profit margins have made it more important for investors to focus on valuations in selecting stocks in emerging markets, according to a recent report by The Boston Company Asset Management, part of BNY Mellon Asset Management.

The report concludes that many key emerging markets have passed the stage of the market cycle in which most stocks rise, even though there continues to be strong economic growth across a wide range of emerging markets countries.

"Good economic growth does not necessarily result in a good stock market in an emerging markets country," said Andrea Clark, senior international research analyst at The Boston Company. "For example, consider the strong economic growth, but relatively weak stock market returns in China and Brazil in 2010."

The report cites Chinese economic growth in 2010, when it topped 10 percent. This rapid growth, the report says, raised inflationary fears, which led to tighter monetary policies and highly publicized wage disputes, putting pressure on stocks. The report noted that Brazil and India also faced threats from inflation.

At this stage of the market cycle, The Boston Company recommends that investors construct a portfolio of the most compelling companies in emerging markets instead of buying an index fund or exchange-traded fund (ETF) that buys an entire market.

"Buying an index could cause investors to miss a wealth of stocks that are poised to benefit from local country dynamics," Clark said. "Many of these are smaller companies that are not part of an index, yet are nimble companies strategically positioned to benefit from the next stage of emerging markets expansion, which we believe is tied to the developing middle class in emerging market countries."

The report, reinforcing the importance of stock selection, notes that evaluating margin sustainability, management quality and product resiliency are important factors in determining which companies are best positioned to withstand the pressures of inflation, growing competition and evolving country dynamics. - ends- Notes to Editors:

The Boston Company Asset Management, LLC, a BNY Mellon Asset Management investment boutique, manages more than $40 billion in assets for more than 450 clients worldwide. It provides investment management services for corporate, public, mutual funds and Taft-Hartley retirement plans, endowments and foundations.

BNY Mellon Asset Management is the umbrella organization for BNY Mellon's affiliated investment management firms and global distribution companies.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $25.5 trillion in assets under custody and administration and $1.2 trillion in assets under management, services $11.9 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available at www.bnymellon.com.

All information source BNY Mellon Asset Management at March 31, 2010. This press release is qualified for issuance in the UK and US and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorised. This press release is issued by BNY Mellon Asset Management (US) and BNY Mellon Asset Management International Limited (ex-US) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. Registered office of BNY Mellon Asset Management International Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorised and regulated by the Financial Services Authority
A BNY Mellon Company(SM)