The Investment Column: Northern Foods has gone off the boil

Northern seems to be under siege from all sides. Its sales are under pressure because of changing eating habits. Consumers are shunning the group's sausage rolls, quiches and pizzas for healthier alternatives. The last time it updated the market it said pastry products revenues were down 11 per cent on the previous year. In the same trading statement, Northern also complained of a 12 per cent drop in biscuit sales. Here the group is under fire from the rival United Biscuits, which is aggressively promoting its offering.

On the cost side of the business, conditions are also very difficult. Northern is up against rising energy prices - it cooks the majority of its foods and has been hit by soaring utility bills. To make matters worse, it has been unable to pass on these higher costs to food retailers.

Pat O'Driscoll, who 18 months ago was parachuted in at the company with a mandate to carry out reforms, now finds herself in an unenviable position. Last month she launched a strategic review, the conclusions of which will be made public alongside annual results in May. It is likely to suggest disposals and a move to reduce the group's extensive product range.

Things are likely to get worse before they get better at Northern Foods. A third profits warning from the company is a real possibility, while a dividend cut looks to be inevitable. Sell.

Emerging markets

A look back at the performance of emerging markets over the past 10 years reveals a simple trend - it's been a case of either feast or famine. During the bad years there was the 1995 Tequila crisis in Mexico, followed by the Russia crisis of 1998, then came the devaluation of the Brazilian real in 1999 and finally Argentina's default in 2001.

The simple problem in those days was that emerging countries - that includes most states in Latin America, Africa, Eastern Europe and Russia, Asia and the Middle East - were living beyond their means and to plug the gap they were borrowing money, usually from the rest of the world. But it's been boom time since, and with the renewed economic expansion has come a flood of cash into local stock markets.

The best way to gauge their performance is the Morgan Stanley Capital International (MSCI) Emerging Market Index. Since the start of 2003 it has soared by more than 160 per cent. Despite the jump, or more likely because of it, retail investors are now piling into funds offering exposure to these markets. Yesterday, Charlemagne Capital, an AIM-listed emerging country equity asset manager, boasted of a significant rise in the amont of cash it has been given to invest.

Industry data shows that during January and February retail investors put more money into funds such as those run by Charlemagne than they did in the whole of 2005. So how much further have such markets to run? The boom so far has largely removed the discount at which emerging country equities have traditionally traded relative to developed markets. The MSCI Emerging Market Index trades at 11.7 times forward earnings, making it only slightly cheaper than the FTSE 100.

But the growth offered by MSCI stocks is significantly higher and that is what makes them desirable. The profit growth of the average emerging market company should easily outstrip the average UK firm over the coming years. Of course, given the globalised nature of the world in which we live, if the world's biggest economies hit the rocks emerging owes will suffer too. Nevertheless, emerging countries should still deliver higher growth and superior profitability, and this should drive the continued outperformance of their stock markets.

For investors looking to get exposure to the best fund managers operating in the emerging market world, Citywire, the financial information group, produces regular league tables. Its research suggests that Elena Shaftan, of Jupiter Emerging European Opportunities Fund, Kim Catechis, of SWIP Emerging Markets and Austin Forey, from JP Morgan Emerging Markets, have been the top performers over the past three years.