Nicholas Spiro, he managing director of London-based sovereign credit risk consultancy Spiro Sovereign Strategy, has written an article appearing in the South China Morning Post to say that no other global asset class has produced more labels and acronyms for investors than emerging markets with many, like the “fragile five,” being misleading.
Spiro began by noting that ever since Goldman Sachs coined the term BRIC in 2001 to refer to Brazil, Russia, India and China, there has been a rapid succession of catchy investment concepts such as MIST, CIVETS and Next 11, which group smaller and less liquid emerging markets as well as some of the more exotic frontier markets. The latest one, coined by Morgan Stanley during last summer’s emerging-market sell-off, is the “fragile five” which refers to countries suffering from balance of payment weaknesses – Brazil, Turkey, South Africa, Indonesia and India.
However, Spiro then discusses why the appropriateness of the categorisation was already questionable at the end of last year along with how the economic and political conditions among the “fragile five” have become much more diverse of late and defy easy categorisation. For example: India and Indonesia have just elected reform minded leaders while Brazil’s President is disliked by financial markets because of her reluctance to undertake fiscal and structural reforms. Meanwhile, problems in Turkey and South Africa make them still the most deserving of the “fragile five” label.
Spiro concluded his article by saying:
As investment banks start thinking up new acronyms and labels for emerging markets, they should be mindful that these are invariably misleading, unhelpful and, as the case of the fragile five shows, often have a short shelf life.
To read the whole article, Emerging-market acronyms are misleading and unhelpful, go to the website of the South China Morning Post.
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