A short but excellent piece by Richard Bradley in the WSJ –
“The received wisdom is that emerging markets are risky
and volatile—and therefore are first in the firing line when risk aversion
rises. The latest jitters over U.S. interest rates and Greece have proved no
different. Investors’ exposure to emerging markets stood at a 15-month low in
June, with a big reduction since May, Bank of America Merrill Lynch’s global
fund manager survey showed. That looks increasingly like outdated thinking, however.
The story since the global financial crisis broke out has been one of belated
realization that risks in developed markets have been underpriced. Vast swaths
of apparently low risk or “risk-free” instruments, from U.S. mortgage-backed
securities to eurozone government bonds, turned out to be anything but. …
The temptation with emerging markets always seems to be
to take the glass half-empty view. Take the latest worries about lower
growth—some of which, at least, is due to reforms that could make growth more
sustainable. Emerging countries are still growing faster in aggregate than
their developed peers. They will account for more than 70% of global growth
this year, the International Monetary Fund thinks, and already account for more
than half of world gross domestic product on a purchasing-power-parity basis.
The bigger puzzle surely is the lackluster growth in developed economies given
the sheer scale of stimulus thrown at them since the crisis.”