T I M E T O R E T H I N K

'
emerging '

markets
 Recently, in the The South China Morning Post, Nicholas
IS THE TERM Spiro laid out a convincing case on why we should rethink the
EMERGING label “emerging markets,” citing factors such as a lack of
political risk (especially as compared to more developed
MARKETS economies), a more comprehensive risk assessment process,
OBSOLETE? and a more resilient market.
 The developed/emerging markets dichotomy is rapidly losing

PERHAPS its relevance, thanks to a confluence of geopolitical factors,

such as increasing instability in developed economies, the
MR. SPIRO IS Great Recession of 2008, and the rising affluence (and
CORRECT. nascent middle class) of many emerging markets.

Let's discuss each of these points further:

INSTABILITY
IN
DEVELOPED
ECONOMIES
The most obvious indicator of the turmoil in developed economies is
the global populist wave that swept through the Western world from
2 016-17. In a shock to the global economic system (as well as to
pundits the world over), voters in the United Kingdom approved
Brexit, while Americans voted Donald Trump into office.
Though the causes continue to be debated by researchers, the root of
this social instability is economic and financial. Essentially, voters
were fed up with rising inequality, driven in large part by ill-planned
free trade agreements, a growing gap between rich and poor, and a
declining middle class. Hence, citizens in these economies voted for
shock therapy in the form of Trump and Brexit--a radical departure
from the political and economic norm.
THE RISING
MIDDLE
CLASS OF
DEVELOPING
In contrast, citizens in emerging economies are seeing great
improvements to their way of life. In China, for instance, the middle
class is booming: by some estimates, from 2000 to the present day,
twice as many Chinese as Americans have entered the middle class,
while numerically, the nation has more billionaires than the United
States--especially self-made female ones.
But more important than the numbers may be perception: unlike the
developed economies, the people of emerging markets still believe in
opportunity, entrepreneurship and the value of hard work--traits
which were formerly the sole preserve of the American Dream. In fact,
this perception has become so widespread that it has even been
deemed the Chinese Dream, a direct corollary of its American
counterpart--and arguably, still achievable in China.
More importantly, it’s not just China--emerging economies, on the
whole, grow faster than developed ones. India, for instance, continues
its impressive growth, despite some slowing over the past year. Still,
its 6.6% growth rate is particularly high, especially compared to
growth in the US and UK.
POST-
RECESSION
REBOUND
Emerging economies have also been noted for their resilience and
flexibility. Though the Global Recession hit emerging markets as hard as
developed ones, the former recovered far more quickly. Researchers
found that emerging markets had recovered much of their pre-crisis
levels of industrial production less than a year after the crisis. As late as
November 2010, emerging markets were only 7 percentage points below
trend, while advanced economies remained at 16 percentage points
The reason for such resilience may be twofold: improved policymaking
and less frequent shocks (at least where it concerns huge, world-altering
events like banking crises and credit booms). Many emerging markets
have moved away from hard exchange rate pegs. As a result, IMF
researchers found that flexible exchange rates reduced vulnerability to
sudden, severe depreciations in such crises. Also, many emerging market
banks have significant reserves, which can reduce exchange rate
volatility and stimulate growth.
CASE STUDY:
CHILE VS.
PORTUGAL
Ultimately, the best argument for leaving behind the term “emerging
markets” may arise from this infographic from the Financial Times
(included on the next slide). It compares and contrasts two nations: Chile,
ostensibly an emerging market (but one with its own booming economy,
especially where it concerns startups) and Portugal, supposedly a
developed nation (and one on the rebound from the 2008 Recession).
Even with Portugal’s recovery in mind, this tale of two nations is
lopsided--in favor of Chile. The Latin American nation’s GDP is slightly
less than twice as much as Portugal, and while average purchasing
power parity (c. 2014) is higher in Portugal than Chile, every other
indicator is not: Chile has a lower percentage of debt and a smaller net
fiscal balance. In other words, emerging market and developed market
paradigm isn’t necessarily a good way to view nations. By most
indicators, in fact, Chile is doing far better than Portugal.
conclusi
on
Rethink “emerging” markets, but understand the limitations

It's important to note that emerging markets do continue to face their

own problems. For instance, like other such nations, India wrestles
with a variety of problems, from underdeveloped infrastructure to
pollution.

All the same, the difference between emerging markets and their
“developed” counterparts may be a difference of political will: India, at
least, is willing to face its problems head-on and devise solutions, even
as “advanced” economies encounter political dysfunction--and the
ensuing self-neglect.