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How incentives shape EM coverage

Weekly investor research

27 November 2017

Emerging Markets (EM) – equities and bonds in both US Dollar and local currency – are yet again this year the best performing asset classes in global financial markets. Yet, one can be forgiven for having missed EM’s solid performance on account of the prominence given to negative stories in EM. Let there be no doubt: the media and banks serve essential functions in the operation of markets, including EM. However, their priorities, especially during period of heightened anxiety, are often very different from those of investors. While media and banks naturally gravitate towards stoking momentum and highlighting bad news, investors typically look for deep value and resilience. Investors will certainly benefit from bank and media coverage of EM in all states of the world, but for investors the key to success is to keep it real: to focus on the numbers and to identify value, to understand incentive structures and to be active with a key focus on liquidity. And never to lose sight of the fact that the EM asset class is now a highly diverse USD 53trn investment universe, which consists of far more than a few colourful countries in the grip of some temporary bout of dysfunctionality.

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