Emerging Markets Characteristics

1.Does the country have responsible fiscal and monetary policies? §Look at deficit to GDP ratio §Above 4% means credit risk 2.What is the expected growth? §Because of risk, should be at least 4% §Less means the economy growing slower than population 3.Does the country have reasonable currency values and current account deficits? §Volatile currency discourages foreign investment §Current account deficit greater than 4% problematic 4.Is the country too highly levered? §Foreign debt greater than 50% problematic 5.What is the level of foreign exchange reserves? §Should be enough to pay foreign debt due within one year 6.What is the government’s stance regarding structural reform? §Commitment to responsible fiscal policies, competition, and privatization encourages growth Based on the last six months and Obama’s huge deficit inheritance… is the US an emerging market?? I’d say it’s pretty close according to CFAI.

Interesting analysis. I don’t agree with using fixed numbers to categorize countries because of sensitivity to the world economy (“beta”). Emerging markets tend to fall more during bear markets (roughly by a factor of 2). Otherwise, I agree with everything you are saying: the US is definitely getting itself in a hole.