Aparadigmshi,isaradicalchangeinpersonalbeliefs,complexsystemsororganizaMons,replacingtheformerwayofthinkingororganizingwitharadicallydifferentwayofthinkingororganizing.ThinkofaParadigmShiRasachangefromonewayofthinkingtoanother.
ThomasKuhn
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WHATAREEMERGINGMARKETS?Inthe1970sthecommontermwas• "lesseconomicallydevelopedcountries"(LEDCs)Thetermwascoinedintheearly1980sbyAntoinevanAgtmael,• thenworkingfortheWorldBank’sIFC.Emergingmarketsassociatedto:• theAsianMgereconomies,• BRIC(Brazil,Russia,IndiaandChina)coinedbyGS,• “fronMer”markets(itisnotcleariftheyyetdeservetobecalledemerging).PoliMcalscienMstIanBremmer:• "acountrywherepoliMcsmabersatleastasmuchaseconomicstothe
markets”.
3
NEXTELEVENNewtermshaveemerged:• BRIC‐Brazil,Russia,India,andChina,• BRICET(BRIC+EasternEuropeandTurkey),• BRICS(BRIC+SouthAfrica),• BRICM(BRIC+Mexico),• BRICK(BRIC+SouthKorea),• NextEleven(Bangladesh,Egypt,Indonesia,Iran,Mexico,Nigeria,Pakistan,
Philippines,SouthKorea,Turkey,andVietnam)• CIVETS(Colombia,Indonesia,Vietnam,Egypt,TurkeyandSouthAfrica),• NIC(NewlyIndustrializedCountries),
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WHOOWN“EMERGINGMARKETS”???ThebestguidestendtobeinvestmentinformaMonsourceslike• ISIEmergingMarkets,• theEconomist,• marketindexmakers(MorganStanleyCapitalInternaMonal),• raMngsagencies(S&P).
5
WHEREMONEYFLOW???90%ofEMmanagersuseMSCIindexes:
– SouthKoreaandTaiwan–30%,– Asia–52%,– LaMnAmerica–20%,– theBRICs–37.5%.
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WHEREISTHEBEEF?!EMgrewby270%throughlastdecade.ShortrunfluctuaMonsarecausedby:• P/EfluctuaMons.Whereas…Equitymarketlong‐termreturnisexplainedby:1. Earninggrowth,2. Dividends
ECONOMYGROWTHMATTERS!!!
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WHATMAKESTHEMGROW?Whateconomistsagreewithis• suchcountriesareconsideredtobeinatransiMonalphasebetween
developinganddevelopedstatus.Whileresearchers,includingseveralprofessorsfromHarvardBusinessSchoolandYaleSchoolofManagement,havedescribedacMvityincountriessuchasIndiaandChina…
…itiss/llli1leunderstoodhowamarketemerges?
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GLOBALIMBALANCES(%OFWORLDGDP)
40
CHN+EMA:China,HongKongSAR,Indonesia,Korea,Malaysia,Philippines,Singapore,TaiwanProvinceofChina,andThailand;US:UnitedStates;DEU+JPN:GermanyandJapan;OCADC:Bulgaria,CroaMa,CzechRepublic,Estonia,Greece,Hungary,Ireland,Latvia,Lithuania,Poland,Portugal,Romania,SlovakRepublic,Slovenia,Spain,Turkey,andUnitedKingdom;OIL:Oilexporters;ROW:restoftheworld.
EMWILL???
!
Exhibit 2 By 2025, the consuming class will swell to 4.2 billion people. Consumption in emerging markets will account for $30 trillion—nearly half of the global total.
Compendium$30 trillion decathlonExhibit 2 of 5
World population, billions World consumption, $ trillion
Consuming class1
Below consuming class1
0.3
1950
2.5
2.2
1970
3.70.9
2.8
1990
5.2
1.2
4.0
2010
6.8
2.4
4.4
20252
7.9
4.2
3.7
2010
38
12
26
20253
64
30
34
Emerging markets
Developed markets
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53
HFMANAGERJONATHANBINDER:“investorswillnotnecessarilythinkof"G10"(orG7)versus"emergingmarkets”.“Instead,peopleshouldlookatthecountriesthat• arefiscallyresponsibleversus• countriesthatarenot.”
63