Practical Applications of A Time of Reckoning in Emerging Markets

Abstract

In A Time of Reckoning in Emerging Markets, from the June 2022, 30th anniversary special issue of The Journal of Investing, author Lawrence S. Speidell (of Frontier Global Partners) says we need to rethink how to classify non-US developed- and developing-country assets. The term emerging markets was coined at the end of the Cold War, when many believed opening global markets meant inevitable worldwide economic growth. MSCI and others created “emerging market” indexes, whose names implied that less-developed countries were on track for rapid growth. However, investments in many of these countries (notably Brazil, Mexico, Russia, and South Africa) and indexes have produced disappointing returns.

The author proposes a new framework for classifying assets and indexes. He recommends dropping the term emerging markets and creating two indexes: an advanced economies (AE) index based on International Monetary Fund (IMF) standards for income, exports, and financial-system integration, and a less-developed (LD) markets index for all the other countries with functioning stock markets. The AE Index would group the United States with other advanced-economy countries, some of which (like Taiwan and Korea) are currently considered emerging markets. The LD Index would group together 75 countries that investors have typically ignored. This could help investors allocate assets without bias from preconceived judgments about which countries are emerging.