Since the end of 1994, emerging market equities have underperformed
those of developed markets. That underperformance began with the
collapse of the Mexican peso and continued with the end of the
Asian miracle in 1997-98, the debt default of the Russian
government in August 1998 and the destruction of the Brazilian
currency peg in January 1999.
Since we last analysed the prospects for emerging markets in
Euromoney (in September 1999), the sorry story has continued with
the first default on a Brady bond by Ecuador and its subsequent
dollarization, the collapse of the Turkish lira peg (again) and now
the impending debt default and possible currency devaluation of one
of the largest emerging market debtors and one of the last currency
pegged-economies, Argentina.
Will this underperformance continue? That depends on three
fundamental factors. The first is the willingness of global
investors to plough increased long-term capital into emerging
economies. That willingness depends on...
