Investing in emerging markets

WISE investors know that winning bets shine more brightly if they are not overshadowed by big loss-making trades. The way in which capital flowed to and from emerging markets in recent years meant that such discrimination went out of the window. Now, however, change is coming.Two influences in particular are behind this. The first is the retreat by America's Federal Reserve from ultra-loose monetary policy. Cheap credit gave good and bad economies alike a boost; as its effect fades, capital allocation will become more disciplined. The peculiar traits of each emerging market, from macroeconomic management to productivity growth, will have a greater say in how its economy performs as well as how investors view it. The second shift is in America's trade policy, which is taking a worrying turn towards economic nationalism'a course whose effects on emerging economies will differ depending on their location and trade patterns. As a result, the reasons for success or failure among emerging markets may be quite different from the recent past.Begin with macroeconomic management, in which there is already a growing divergence....Continue reading
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