Abstract
The early 1990s saw great optimism over emerging markets. The public came to believe that governments worldwide were committed to economic reforms and greater transparency in markets. The low correlations of emerging markets with developed markets promised advantages to pioneer investors. As crises originating in Mexico, Thailand, and Russia rippled throughout the world, however, investors experienced instead falling liquidity, rising volatility, and increased correlations with developed markets. Emerging markets will earn their place as a legitimate asset class, the author notes, when sound companies offer foreign investors a fair participation in the above-average economic growth rates of many developing countries. The emerging markets experience may be compared to the development of small-cap investing in international markets during the 1990s, when smaller stocks initially underperformed, sold at deep discounts, and offered great diversification benefits. Then in the late 1990s they delivered excellent performance.
- © 2002 Pageant Media Ltd
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