ONCE upon a time, it was hard to find anyone with a bad word for the emerging markets. In the early 1990s, there was a lot of talk about their faster growth and young populations; then in the 2000s, EM equities outperformed those in the developed world with ease. (The four BRICs returned between 294% and 884%, while the S&P 500 and European markets were flat).
But the mood has changed dramatically and now it is hard to find anyone with a good word to say about them. It is probably worth focusing on those analysts who have been consistently bearish such as Manoj Pradhan of Morgan Stanley, who published a research note called "The Great EM Unwind" two years ago. In that note he warned that
EM economies are being buffeted by three historical build-ups being unwound at around the same time: i) US QE is being unwound by generating higher real rates and a stronger dollar - this hurts EM capital accounts; ii) China's build-up of leverage is being unwound as part of a process that will take trend growth lower - this hurts EM current accounts; and iii) Credit growth in some EM economies is being unwound, with domestic demand likely to suffer
That all looks pretty prescient although his crystal ball didn't seem to reveal the big plunge in commodity prices. His latest note offers some relief, arguing that this is not an...Continue reading
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