The term “emerging markets” was first coined nearly 30 years ago and has become outdated, as the differences between developed and emerging markets have lessened, according to a white paper from Standish Mellon Asset Management Co., the fixed income division of BNY Mellon Asset Management.
Instead, the firm suggests “ASTERICS,” or “assets tied to economies of risky countries.” Thus, even developed nations whose fundamentals are deteriorating could be included in the classification, according to Standish Mellon. Most notably, many developed nations are facing political risks and large deficits, the report notes.
“We believe the term ‘emerging markets’ is a deficient investment concept, as it is inconsistent and vague,” said Standish Managing director and Senior Portfolio Manager Alexander Kozhemiakin. “Traditional divisions between so-called developed and emerging markets are blurring, as some countries in the former category display higher levels of risk and a more serious degradation of fundamentals than countries in the latter.”
Also misleading, according to the firm, is the term “markets,” as it groups all of the various types of securities markets together. A single country can have very differently performing equity, currency, bond and real estate markets, Standish Mellon says.
“It is possible that a country classified as ‘emerging’ can have a relatively mature, liquid market,” Kozhemiakin said. “Conversely, the presence of mature, liquid markets liquid markets does not necessarily mean that a country in which they are operating is risk-free.”
