Reuters Rethinks Emerging Markets Rout Refrain
Another international media company back-peddles from the story that all emerging markets are doomed, doomed, doomed in the era of modest Fed tapering. We’ve steadfastly maintained that it is intellectually lazy to treat all developed economies the same, all emerging economies the same, or all frontier economies the same. It matters what the character of a nation is and what the leadership is like and whether the price of the market is at bubble vs. bargain pricing. Switzerland is developed and extremely free. France is developed and thoroughly socialist. Argentina is in the ’emerging’ category (despite the fact that it is submerging) and so is Hong Kong, one of the most free nations in the world. Comparing a country with a national debt which is 20% of GDP to one where it’s 220% is incoherent.
The mainstream press this week, starting with the Financial Times and moving then to the Wall Street Journal and now Reuters, has figured this out.
“To be sure, there appears to be little panic among long-term investors who still insist cheaper emerging market equity will pay off over time in economies with higher growth potential, better demographics and better balance sheets than much of the developed world.
“The long-term investment case hasn’t dramatically changed,” Franklin Templeton’s veteran emerging markets investor Mark Mobius said last week.
“There are good reasons at least why full-blown sovereign and systemic crises can be avoided, unlike the late 1990s of rigid exchange rates and modest hard cash reserves.
“But the chillier international winds will expose any deeper structural and political flaws in capital-hungry emerging economies. And less patient mutual funds – where net $14 billion of outflows last month alone exceeded 2013 as a whole – may not want to hang about for that long.
“One choice may be to switch between interest-rate sensitive markets of the ‘Fragile Five’, Turkey, Brazil, India, Indonesia and South Africa, and those more hip to global growth at large, such as South Korea, Russia and China itself.”
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