We had asked in these columns earlier this week whether economies that collectively churn out half the world’s output and boast increasing financial strength should continue to be called emerging markets.
The new World Economic Outlook released by the International Monetary Fund (IMF) gives us reason to revisit this question (see Page 4). The multilateral lender notes in the report that financial markets in emerging economies “have been remarkably resilient”.
Forget the temporary strain after the collapse of Lehman Brothers in September 2008 and think about it: Did stock markets stop trading, did banks tumble or were there defaults on foreign debts? No. That happened in 1997, but not in 2008.
IMF points to three reasons: lower fiscal deficits, larger foreign exchange reserves and less corporate dependence on foreign borrowings.
If emerging markets as a group have become more resilient to shocks, then shouldn’t financial markets be pricing in this new reality through lower risk premiums?