Is it the Death of a Cognition called "Emerging Markets"?

I have always wondered whether the concept of “Emerging Markets” was brought in, to lure investors away from a developed economy or new avenues were existing since 1990s and were unexplored until then. The present global economic condition poses an interesting riddle, answer to which lies more in luring investors away from developed economies. What we see today is the aftermath of an easy money-making decade for emerging markets where interest rates were low & commodity boom was high. It gave the whole world a different perception that investing in these markets would fetch them higher returns and the trend would continue as a long-term pattern.

The recent statistics show that investors have been pulling out cash from these markets, weakening their growth and overall image of being avenues of steady returns in spite of slowdowns. Indeed, these emerging markets constitute 80% of world population and 40% of global economy and had been the last resort to many investors in the last 15 years or so, whenever the fear of global recession had stalled investments in developed markets. Ironically, strengthening of US dollar and subsequent Federal Reserve’s policies has proved beneficial to US; US remains a resilient economy today after all the chronicles we witnessed on economic slowdown, fiscal cliff & real-estate boom from 2001-2012. It is a complete reversal of situations today where investors are looking for selected geographies to invest keeping developed economies in mind, while just a couple of months back, investors were banking on these emerging markets to salvage their returns. Investors are aware that emerging markets do have their own issues and the fact that some of the markets have been emerging since time immemorial and still have not transformed into developed markets. Emerging markets such as China, India, Brazil, Turkey, South Africa have been dependent on the decade-long boom for their infrastructure development. But today, when money is being pulled out consistently over the last 1 month from these markets, it is showing on the manufacturing output of these markets. Inter-related demand & supply between these markets has gone down, resulting in lower manufacturing. The key to long-term economic growth is consistency in manufacturing & infrastructure development. The prospective change in India’s policy on FDI in retail, must be a corrective measure having assessed the situation now.

Inflation and high cost of credit has come back with a vengeance in these markets. This has affected mainly the middle class of these nations who primarily depend on job salaries, which in turn never get revised to the extent of inflation percentage. Agitations in Turkey & Brazil are a result of venting their anger on rising prices of essential commodities. Even China, which was in the limelight for a decade is feeling the pain today. A stumbling EU & an over-hyped BRICS has contributed to this situation to an extent. But economic failures also depend on political leaderships; statistics say that any party/leader who rules a country for more than 10 years is counter-productive. Regimes need to change in order to view economic situations differently and bring in dynamic reforms to curb inflationary vibes in the market. Mexico, Philippines & Thailand are deemed to be the next generation of emerging markets, not only because of cheaper labour costs, but for new political leadership. The current situation might morph into a new global panic but most of the emerging markets are in better position today to withstand economic shocks with well capitalized banks. Good news is that most markets are projecting positive growth in pre-winter & post-winter quarters. Markets operate on sentiments, be it during downturn or during boom.

India, amidst extreme pressure of rising fiscal deficit and depreciating rupee, must find a new regime rather than expecting perpetual face-saving economic reforms which historically become ineffective after months’ time. It must leverage its strong democratic set up to overcome this challenge. Population explosion, poverty & illiteracy have been age-old excuses, which today cannot be accepted as the only deterrent factors towards economic stability of India.