Thursday, December 9, 2010

Marr & Reynard, Investing in Emerging Markets

British financial journalists Julian Marr and Cherry Reynard take the reader around the world in 246 pages. Investing in Emerging Markets: The BRIC Economies and Beyond (Wiley, 2010) is an engaging book, well researched and well written. For Americans, it is also refreshing to have a British perspective because so much of the research on emerging markets is done in London. I follow the economy of one country (which fluctuates between emerging and submerging) fairly closely and am constantly being referred in its press to “the analysts in London.”

The authors begin with a sophisticated introduction to the emerging markets, asking such questions as whether globalization and decoupling can possibly occur simultaneously. They analyze the notion of a commodities supercycle (noting in a different context that “in investment, certainty is the rarest commodity of all”). (p. 80) They weigh the benefits and risks of sovereign wealth funds.

Moving on to the BRIC economies, the authors brush aside ideas designed to rationalize grouping the four economies together that “cross the line from the simplified to the simplistic.” Their view is more dynamic. “Suffice to say that the quartet are the flagships of the three main emerging markets regions of Asia, Emerging Europe and Latin America and their importance to global trade over the coming decades is hard to overstate—not least in the way they interact with each other.” (p. 83)

The bulk of the book focuses on individual emerging market economies, including those better described as the “emerged” emerging markets (Hong Kong, Singapore, South Korea, and Taiwan), with a very brief look at the frontier markets. The general format for the more developed economies is a brief economic history followed by a section making the investment case for the country. Sometimes the investment case is weak. Take Argentina, for instance, which “provides a salutary lesson in how not to manage an economy.” (p. 194)

The authors draw insights from a number of emerging markets experts, many of whom highlight the dangers of investing in emerging markets. Throughout the book the authors raise “the spectre of possibilities such as water shortages in China [and] advances in technology derailing demand for certain commodities.” They also quote the risk list of a CIO (abbreviated here): “What happens when interest rates start to rise? … How is the ‘Axis of overspending’ going to finance their projected deficits? Is China the savior of the global economy or its Achilles’ heel?” (p. 222)

Investing in Emerging Markets is a thoughtful, balanced book which offers an overview of regional and country-specific economies. Naturally, anyone thinking about investing in an individual country should seek out far more information than the authors can provide here. Their summaries are but stepping off points. At least they are solid; readers have been given the wherewithal to avoid both slippery slopes and quicksand.

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