Saturday, 11 June 2011

em-dm... am?

Interesting article in the FT, basically suggesting that by many metrics, EM emerging markets, have progressed to be close to or at the level of the DM, developed markets. More interesting than the history is the prediction that high savings rates in EM's will moderate, creating new demand, and that capital flows of recent years will reverse, ie capital will flow from DM to EM's.

Perhaps though there is another category that one will need to classify economies, and that is AM, ageing markets, such as Japan and parts of Western Europe, that will probably have a very different dynamic to that of developed markets that don't have the same demographic challenges.


  1. Tricky thing is, in this day and age the firms listed in the AM's might be doing most of their business in the DM's and EM's.

    For a long term investors isn't just buying and holding good, fairly valued companies, wherever they are listed, still as good a strategy as ever?

  2. I agree, that for a company it matters far more where it does its business than where it lists. I was thinking more of currencies and the bond markets. I also think you are correct that stock picking is absolutely key to generating high quality returns. I also agree that lower turnover is generally better than high turnover, however;

    I am very skeptical of buy and hold as a strategy. The evidence people use to justify it is not dissimilar to the argument that ratings agencies used in their subprime models, ie. since 1950 prices have risen over a long horizon.

    How would buy and hold have worked in Japan in 1990, Russia in 1915, Germany, etc.

    I also am really worried about the demographic headwinds for owning financial assets over the next few decades, and not because of the worry that governments just debase their currency. But because asset prices have been in a secular bull trend because of baby boomers saving for their retirement, how will valuations change if they are net sellers of houses, shares and bonds rather than big net buyers?

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  4. Yes, I do keep trying to explain to people that their retirement plans involve selling their house to their kids at a price their kids can't afford to buy at.

    Luckily my old man just wants to give my brother and I his :)