On emerging markets

The Financial Times had a couple of interesting articles on emerging markets yesterday.  One spoke of the “end” of the label ’emerging markets’ while the other gave a positive view of the same.

Through a comparison of some measures involving both the developed and the emerging markets, the founder and CIO of Everest Capital Marko Dimitrijevic said the label ’emerging markets’ is fast becoming obsolete. He wrote:

Even though emerging markets have very large economies, the common misconception is that they have fairly small, illiquid, and volatile financial markets. This is definitely not the case. Because of faster economic growth, the outperformance of their financial markets in the last decade, and the fact that many private and government owned companies have recently been publicly listed, the market capitalisation of emerging markets has grown considerably and in total now represents 30 per cent of world market capitalisation, as much as the USA. China now has a larger market cap than Japan. Korea and Taiwan, two emerging industrial powerhouses, together have a larger market cap than Germany, and Brazil has a larger market than Australia.

He also added:

Another argument against emerging markets is that they are too volatile and have unstable, unpredictable governments that leave them susceptible to coups or revolutions. In reality, however, volatility levels in emerging markets have come to nearly match those in developed markets. Even in the extreme market environment of 2008, emerging markets and developed market volatilities were very similar. So in terms of size, liquidity and volatility, emerging markets are on par with developed markets and should not be discriminated against based on antiquated notions around these criteria.

I see what he means and it’s admirable that he’s thinking this way, in advance.  That said, it probably won’t be appropriate to start ditching the label and instantly jumping into the developed market category.  I believe it’s not so much the measures and characteristics alone as it is also the period by which these countries have exhibited  such a massive development. But it wouldn’t be wrong to think they’re going there.  After all, many of these emerging countries are already a part of the G20 and their influence is similarly growing quickly.

Maybe BRIC as the developed quarter in, say, 10 years ‘ time?

To somewhat support the positive view the previous writer had, another FT article talked about the resilience of emerging markets, if we were to base it on the credit ratings they’ve received/the decline in rating downgrades these past few months.

The resilience of emerging markets to the financial crisis has been highlighted by Standard & Poor’s which says credit deterioration in these countries has slowed to a virtual standstill.

The number of emerging market sovereign downgrades has fallen markedly since March as they have avoided the meltdown that many investors feared after the collapse of Lehman Brothers last September, says the rating agency.

Source: on emerging markets, on ratings resiliency

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