Macroscope | Emerging-market acronyms are misleading and unhelpful
Given the changes in the economic and political conditions, it is difficult to have labels that reflect appropriate categorisation at all times
No other global asset class has produced more labels and acronyms than emerging markets.
Ever since Goldman Sachs coined the term BRIC in 2001, referring to the world's large developing economies (Brazil, Russia, India and China), there has been a rapid succession of catchy investment concepts such as MIST, CIVETS and Next 11, which group smaller and less liquid emerging markets as well as some of the more exotic frontier markets.
The latest one, coined by Morgan Stanley during last summer's emerging-market sell-off triggered by plans by the United States Federal Reserve to wind down its programme of quantitative easing, is the "fragile five", which refers to countries suffering from balance of payment weaknesses - Brazil, Turkey, South Africa, Indonesia and India.
The Indian rupee and the Indonesian rupiah … [bely] their ‘fragile’ status
Yet while the appropriateness of the categorisation was already questionable at the end of last year - India's current account deficit stood at roughly 2 per cent of gross domestic product while Turkey's was close to 8 per cent and financed almost entirely by speculative inflows of foreign capital - it has lost much of its relevance this year.
The economic and political conditions among the "fragile five" have become much more diverse of late and defy easy categorisation.
On August 29, Brazil said the country had suffered a technical recession in the first half of this year, with the economy contracting 0.6 per cent in the second quarter, dragged down by a 5.3 per cent decline in investment.
The woes of Brazil contrast sharply with the renewed optimism about the prospects for India, whose economy posted its strongest growth rate in two years in the second quarter, expanding 5.7 per cent on an annualised basis.
Unlike Brazil's President Dilma Rousseff, who is disliked by financial markets because of her reluctance to undertake fiscal and structural reforms, the election in May of Narendra Modi as India's new premier is seen by investors as providing a crucial impetus to reform.