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Once accepted the idea that the emerging world may behave like a block in period of crises (as the group of advanced countries also does), one must wonder whether one should go beyond that and consider that the emerging world deserves better: the wide divergence between countries, the health of some countries (sometimes better than some advanced countries) simply mean that it does not make sense to view the “emerging world” as a whole, as a block, but as well-defined, specific and homogeneous subsets.
The key questions are: how to define these groups and sub-groups? Are these sub-groups, in line with economic reality, also in line with financial reality (outperformance/underperformance)? That is what this Discussion Paper is about.
Our results are not ambiguous: the EM world deserves to be considered as a very heterogeneous group, both in terms of economic criteria (such as vulnerability, capacity to boost growth if needed…), and in terms of performance. We have developed original approaches giving the possibility to play these characteristics. A static approach and a dynamic approach are both presented. One drawback, though: capital flows tend to go in and out at the same time, in line with global economic conditions, risk aversion, volatility… The capacity to escape a market downturn within EM world is therefore rather limited (see the forthcoming Discussion Paper on contagion for in-depth analysis and applied results.
To find out more, download the full paper
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