It’s imprecise, unfair, and almost borderline racist to make sweeping generalizations about the emerging markets.
Sure, as an asset class the emerging markets got slammed this week. But the reasons vary.
“The real lesson from recent events is that the need for investors to discriminate between individual EMs has never been greater,” wrote Capital Economics Neil Shearing.
Still, most of us don’t have time to read about the complete history of the emerging markets.
“[A]t the risk of generalising, there are perhaps five separate groups among the 56 EMs that we now cover,” wrote Shearing in his note.
Here’s our paraphrasing of Shearing’s incredibly brief summary:
- Argentina, Ukraine, Venezuela: “Serial mismanagement by the authorities is now posing a risk to economic stability.”
- Turkey, South Africa, parts of South East Asia, Chile, Peru: These countries have “lived beyond their means and that now face a period of weaker growth. These countries are generally the ones that are most vulnerable to Fed tapering and the shift towards tighter global monetary conditions over the next couple of years.”
- Emerging Europe including Hungary and Romania: These countries have “the legacy of previous booms continues to cloud the outlook. …where a combination of the hangover from last decade’s credit bubble and strong financial ties to the euro-zone means that banking sectors are still fragile.”
- Brazil, Russia, India, China (BRIC): These countries are “facing domestic structural problems… Their prospects will be shaped by the extent to which policymakers implement economic reform, rather than events in Europe or the actions of the Fed.”
- Korea, the Philippines, Mexico: These are the countries “where the outlook is brightening.”