Financial recoupling in emerging markets

Eduardo Levy Yeyati, 3 April 2011Conventional wisdom states that financial globalisation has been advancing since the mid-1980s, particularly in developing countries. It also states that this should have fostered international portfolio diversification and consumption smoothing. But this column takes a closer look at the data and argues that neither financial globalisation nor portfolio diversification has grown significantly in emerging markets over that period.

Eduardo Levy-Yeyati, Tomás Williams, 13 January 2010Emerging markets have undergone structural changes that reduced their exposure to a global tightening, but they are still affected by US rates. This column suggests that positive US economic surprises that bring forward the undoing of quantitative easing and steepen the US Treasury yield curve may translate into wider emerging markets spreads.

By Elliott Orsillo: Emerging market debt trades at "twice the yield of developed country debt and triple the fundamentals." - Jeffrey Gundlach, 2011

The paragraphs below come courtesy of Mark Mobius, emerging markets guru and executive chairman of Templeton Asset Management.

Prieur du Plessis submits: This post is a guest contribution by Manoj Pradhan ofMorgan Stanley.

By Tom Lydon: Emerging market exchange traded funds that focus on small-cap stocks have more growth potential than large-caps. Although these smaller counterparts are a bit riskier, they can add more exposure to a portfolio.

THE Brazilian Finance Minister Guido Mantega spoke for many emerging markets in April when he fumed against, “countries responsible for the deepest crisis since the Great Depression…eager to prescribe codes of conduct to the rest of the world”. Mr Mantega might be pleasantly surprised by a Bank of International Settlements paper on central banks and financial stability, which holds up emerging markets as a model for the developed world.

Michael Johnston submits:Emerging markets have seen their importance to the global economy swell in recent years, as the developing markets of the world have become the primary drivers of growth not only in their home markets but in advanced economies around the globe as well.