Emerging markets are the new black. Right? (The old black being structured finance and subprime lending – but don’t let that put you off.)
Inboxes at Alphaville HQ have been flooded with reports and analysis extolling the virtues of the developing world during the current market shake-up.
Indeed, last week Morgan Stanley’s Jonathan Garner argued that what we are seeing is the transition to an emerging market-led world economy from one led by the US. In a separate report he added:
The weak fundamentals in EM — overvalued currencies, external debt and high leverage in the corporate and financial sectors — were the triggers for a generalized flight to quality in the summer of 1998. Today, it is EM which in our view has the strong fundamentals — undervalued currencies in most cases, high foreign exchange reserves and limited leverage in the corporate and financial sectors — but has been suffering from “reverse contagion” from elsewhere. EM should ultimately emerge the stronger as a result, just as the US dollar and US financial markets benefited in 1999/2000 from skepticism surrounding investing in EM.
But are Garner and other EM bulls being to general in their advice?
The Times, for example, on Tuesday had a word of warning in its City diary, pointing to developments in one of the more unusual forms of risk exposure – kidnapping.
The Colombian kidnapping index – which we have tracked down on Bloomberg, right - shows that kidnappings have surged over the past few months.
The monthly figures have remained low since 2005, after hitting a high of 453 back in early 2000, but have shot up over the 100 mark again in the last set of figures.
Clearly, some emerging markets have more attractive fundamentals than others.