Emerging Markets in an Upside Down World Challenging Perceptions in Asset Allocation and Investment 1st Edition by Jerome Booth ISBN ‎ 1118879678 ‎ 978-1118879672

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ISBN 10: ‎ 1118879678
ISBN 13: ‎ 978-1118879672
Author: Jerome Booth

The world is upside down.  The emerging market countries are more important than many investors realise.  They have been catching up with the West over the past few decades.  Greater market freedom has spread since the end of the Cold War, and with it institutional changes which have further assisted emerging economies in becoming more productive, flexible, and resilient.  The Western financial crisis from 2008 has quickened the pace of the relative rise of emerging markets – their relative economic power, and with it political power, but also their financial power as savers, investors and creditors.

Emerging Markets in an Upside Down World – Challenging Perceptions in Asset Allocation and Investment argues that finance theory has misunderstood risk and that this has led to poor investment decisions; and that emerging markets constitute a good example of why traditional finance theory is faulty. The book accurately describes the complex and changing global environment currently facing the investor and asset allocator. It raises many questions often bypassed because of the use of simplifying assumptions and models. The narrative builds towards a checklist of issues and questions for the asset allocator and investor and then to a discussion of a variety of regulatory and policy issues.

Aimed at institutional and retail investors as well as economics, finance, business and international relations students, Emerging Markets in an Upside Down World covers many complex ideas, but is written to be accessible to the non-expert.

Emerging Markets in an Upside Down World Challenging Perceptions in Asset Allocation and Investment 1st Table of contents:

I.1 Upside down: perception vs reality

I.2 The structure of the book

1 Globalisation and the Current Global Economy

1.1 What is globalisation?

1.2 Economic history and globalisation

1.2.1 The desire to control and its impact on trade

1.2.2 The influence of money

1.2.3 Trade and commodification

1.2.4 Nationalism

1.3 Recent globalisation

1.3.1 Bretton Woods

1.3.2 Ideological shifts

1.3.3 Participating in globalisation: living with volatility

2 Defining Emerging Markets

2.1 The great global rebalancing

2.1.1 Financing sovereigns

2.1.2 Catching up

2.1.3 The poorest can also emerge: aid and debt

2.1.4 From debt to transparency and legitimacy

2.2 Investing in emerging markets

2.3 Emerging market debt in the 20th century

2.3.1 Types of external sovereign debt

2.3.2 From Mexican crisis to Brady bonds

2.3.3 Market discipline

2.3.4 Eastern Europe

2.3.5 Mexico in crisis again

2.3.6 The Asian and Russian crises

2.3.7 Emerging markets grow up

(a) The first change: country and contagion risks fall

(b) The second change: the investor base

2.3.8 Testing robustness: Argentina defaults

2.3.9 The end of the self-fulfilling prophecy

2.4 The growth of local currency debt

2.5 Why invest in emerging markets?

3 The 2008 Credit Crunch and Aftermath

3.1 Bank regulation failure

3.1.1 Sub-prime

3.2 The 2008 crisis

3.3 Depression risk

3.3.1 Reducing the debt

3.3.2 Deleveraging is not an emerging market problem

3.4 Global central bank imbalances

4 Limitations of Economics and Finance Theory

4.1 Theoretical thought and limitations

4.2 Economics, a vehicle for the ruling ideology

4.3 Macroeconomics

4.4 Microeconomic foundations of macroeconomics

4.4.1 Efficient market hypothesis

4.4.2 Modern portfolio theory

4.4.3 Investment under uncertainty

4.5 Bounded decisions and behavioural finance

5 What is Risk?

5.1 Specific and systematic risk

5.2 Looking backwards

5.3 Uncertainty

5.4 Risk and volatility

5.5 Risk in emerging markets

5.6 Rating agencies

5.7 Capacity, willingness, trust

5.7.1 Rich countries default by other means

5.7.2 Two sets of risk in emerging markets

5.8 Sovereign risk: a three-layer approach

5.9 Prejudice, risk and markets

5.9.1 When you have a hammer, everything looks like a nail

6 Core/Periphery Disease

6.1 The core/periphery paradigm

6.1.1 Core breach?

6.1.2 Another core/periphery concept: decoupling

6.1.3 And another: spreads

6.2 Beyond core/periphery

6.2.1 Towards a relative theory of risk

6.2.2 GDP weighting

7 The Structure of Investment

7.1 Misaligned incentives

7.2 Confused incentives

7.3 Evolutionary dynamics, institutional forms

7.3.1 History matters

7.4 Network theory

7.5 Game theory

7.6 Investor structure and liquidity

7.7 Market segmentation

7.7.1 Warning signals

7.8 Investor base structure matters

8 Asset Allocation

8.1 Asset classes

8.1.1 Alternatives

8.2 How asset allocation occurs today

8.2.1 Investor types

8.2.2 Asset/liability management

8.3 From efficiency frontiers to revealed preferences

8.4 Asset allocation vs manager selection; active vs passive

8.5 Allocating at sea

9 Thinking Strategically in the Investment Process

9.1 Thinking strategically

9.1.1 Thinking strategically: appropriate discounting

9.2 Scenario planning

9.3 Global structural shifts ahead?

9.3.1 Asset allocation: some proposed new rules

9.4 Investment process in emerging debt

9.5 Conclusion

10 A New Way to Invest

10.1 Sense-checking assumptions

10.1.1 Risk, uncertainty and information asymmetry assumptions

10.1.2 Investor psychology and behaviour assumptions

10.1.3 Structure, market efficiency, equilibrium and market dynamics

10.1.4 Asset class definitions

10.2 Assessing liabilities

10.3 Your constraints

10.3.1 The decision chain

10.3.2 Institutional capabilities

10.3.3 Psychological constraints

10.4 Consider changing your constraints: agency issues

10.5 Building scenarios

10.6 Understanding market structure

10.7 Asset allocation

10.7.1 Route 1: Comprehensive

10.7.2 Route 2: Entrepreneurial

10.7.3 Asset allocation dynamics

10.8 Meta-allocation: toolset choice

10.9 Follow the skillset

10.10 Portfolio construction and monitoring

11 Regulation and Policy Lessons

11.1 Regulating financial institutions: new and old lessons

11.1.1 Fix the banks

11.1.2 Non-banks: who holds what?

11.1.3 Reduce agency problems: trustee incentives

11.1.4 Honour public service

11.1.5 Choice architecture

11.2 What to do about systemic risk?

11.2.1 Avoid regulation that amplifies risk

11.2.2 Beware market segmentation

11.2.3 Structure matters

11.2.4 Map perceptions of risk

11.2.5 Detect and stop asset bubbles

11.2.6 Preserve credibility

11.3 Wish list for emerging market policymakers

11.3.1 Allow markets to work

11.3.2 Proclaim and foster greater pricing power

11.3.3 Promote EM global banks, south-south linkages

11.3.4 Build capital markets

11.3.5 Fight core/periphery disease

11.4 Reserve management and the international monetary system

11.4.1 The dollar is your problem

11.4.2 Alternatives to the dollar

11.4.3 Too many reserves

11.5 What investors can expect from HIDC policymakers

11.5.1 Financial repression

11.5.2 Consequences of financial repression for banks

11.5.3 No early exit from quantitative easing?

11.5.4 Bond crash

11.5.5 Inflation

11.5.6 Appeals to foreign investors

11.5.7 Regulatory muddle-through

11.5.8 Pension reform

11.5.9 Pension regulatory conflict may only abate once EM investors exit

11.5.10 Rating agencies

11.5.11 Intellectual reassessment

11.6 What investors can expect from emerging market policymakers

12 Conclusion

12.1 A final list…

12.2 … for an upside down world

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Tags: Jerome Booth, Emerging Markets, Asset Allocation