The View | ‘Emerging markets’ label obsolete as advanced economies become politically risky

Nearly a decade ago, The Economist magazine questioned the appropriateness of the term “emerging markets”.

The label had become somewhat anachronistic during the 2008 global financial crisis when it was developed countries that bore the brunt – and, more importantly, were the source – of the severe banking and macroeconomic woes that wreaked havoc on the world economy.

As China’s aggressive monetary and fiscal stimulus hauled the global economy out of recession, and as the leading emerging markets proved remarkably resilient to the financial mayhem in the United States and Europe, many fund managers and investors began to rethink their asset allocation process, and their perceptions of sovereign risk more generally.

Jerome Booth, a prominent investor and one of the most authoritative commentators on emerging markets, went so far as to say that many developing economies had become “safe havens” because of their much lighter debt burdens, significant economic clout and, in many cases, stronger creditworthiness.

Booth noted that the main difference between developing nations and their advanced counterparts was that in emerging markets, the risks were already priced in. In advanced economies, on the other hand, investors never bothered to price in the risks because they perceived developed nations as more or less risk-free.

These risks, moreover, were as much – if not more – political as they were economic.