Читать книгу The Emerging Markets Handbook - Pran Tiku - Страница 5

If history serves as any guide to the future then emerging market investors are faced with an analytical dilemma. How does one appropriately adjust emerging market country risks based on the past when the risks have dramatically changed over time? What are the risks to begin with? And how are these risks related to each other if at all?

The risks in emerging markets tend to be multifaceted and in many cases asymmetric. Therefore, how does one account for short-term political and economic risks that grab headlines but are in many cases unquantifiable? And then how does one account for the correlation of these markets with the advanced nations, which at times is unexpectedly strong?

Emerging markets often get caught in a down draught because of events far from their shores. In the financial crisis of 2008 and early 2009 the emerging markets suffered mightily when the actual culprits were US and European countries that started the torrent of losses with massive housing and debt problems. It is now well acknowledged that emerging markets were economically sound and had not participated in any major real estate or debt related scandals.

Looking at other examples, a minor flare up in Seoul or Bangkok can cause serious repercussions for domestic markets and sometimes for the entire region, while bigger events in Bonn or London may be ignored without any reaction by the financial markets. A policy change by US Federal Reserve can have a larger impact in emerging markets than in the US markets.

Despite some well-reasoned explanation to the contrary, these factors persist much longer than justified. To a large extent this is the result of investor sentiment being based on history – there is not enough recognition that the emerging markets of today are not the same as those that existed a decade ago, or even as recently as five years back.

This book takes the approach of looking at these emerging markets not as what they were nor as one wishes them to be, but based on realistic assessment of different risks as they are today. It emerges that investing in emerging markets has risks in many cases similar to investing in smaller, illiquid and less transparent markets, with the expectation that an investor be appropriately rewarded for taking those risks.

The 18 markets covered in this book are a select group of countries in the throes of dynamic change that is likely to propel them forward. The speed of change is not always uniform and will vastly vary from country to country. It is quite likely that the progress will at times be inconsistent with expectations as a result of misjudgements based on narrow political or social considerations. These are all to some extent part of the myriad risks presented by these bourgeoning economies.

One has also to contend with the inconsistencies in data as well as expected results. For example, we often refer to GDP growth or increasing populations as accelerators of economic growth and therefore a logical reason for investing in a particular country. However, as it has been shown, there is not a direct relationship of correlation or causality between any single factor that is simple and easy to explain.

A country like China which represents the most ideal demographic and GDP growth characteristics has been much less rewarding than Mexico, despite its mediocre growth and unimpressive demographics. It may be hard to explain what makes a particular country favourable for investment. In many emerging countries the fiscal and monetary decisions may not be devoid of political considerations, so an investor needs to pay attention to risks that are difficult to quantify. This book has tried to point readers towards these obscure risks when appropriate.

All countries at one point have been emerging and even though the definitions of emerging have changed over time there has been one constant. This is that all the emerging nations have moved from rudimentary systems to those that are constantly evolving. This continuous evolution causes flux that sometimes creates angst among investors. It results in volatility. Sometimes this volatility can become a great friend for a savvy investor. The analysis provided within these pages will hopefully lead to a better understanding of the underlying causes driving volatility in these markets and therefore better equip readers to deal with it and profit from it.

One important fact that made an impression during the researching of this book was the relationship that exists between a country’s capital account and currency values, and crises that have occurred in the past as a result of financial imbalances. There have been dramatic shifts (mainly massive devaluations) in currency values in most of these countries. Financial crises have occurred in Mexico, Thailand, Indonesia, Malaysia, Russia, Brazil and Turkey. This is quite obvious when one takes a look at the currency charts provided in the book. Many of these countries got into a vortex of debt due to unsustainable current account deficits and this led to financial chaos and to eventual bailouts.

There seemed to be two common characteristics in many of these situations. The country either had its currency under a managed float against the dollar, or the currency was pegged to the dollar. Once the crisis started currency values plummeted despite heroic measures by many of the countries to defend their currencies. This generally resulted in a loss of confidence, sometimes for the entire region, and curtailed international capital flows with the overall result of recessions that sometimes lasted for years. Eventually countries recovered after massive bailouts by the IMF, or in the case of Mexico by the US, and as trade balances normalised and currency values stabilised.

However, with more transparency and their absorption into world organisations such as the IMF and the WTO, recent trends clearly indicate that emerging countries now have much stronger economic fundamentals than at any time in the recent past. In most cases their currency regimes are transparent and freely floating and their debt levels are low – much lower in fact than most advanced nations of today.

In the exhibit below you will find some of the ratios in 2013, as well as what those ratios were in the crisis years for these countries.

Often the past is by no means indicative of what to expect of these countries in the future. Ideally policy makers in these regions would have learned from past mistakes. However, at the very least, risks may not come up in the future in the exact ways that they did in the past. Before investing in these regions it is important to understand all the risks in order that you can appropriately adjust for the great opportunities that lie ahead.