Life Cycles of Emerging Markets
Life Cycles of Emerging Markets
Because investing in emerging markets has become a very popular subject, a closer analysis of how markets really “emerge” may be in order.
In many ways, stock market cycles closely resemble the human life cycle. First, stocks are in an embryonic stage. Then, when they reach adolescene, they grow very rapidly (bullish phase). During this stage, they are accident-prone
(crashes).Later, markets mature, lose some of their energy and volatility, then become tired and finally die (bear markets).
Fortunately for stock markets, there is usually life after death. A new cycle begins that, like reincarnation, is very different in nature from the previous cycle. This discussion focuses on the events that tend to occur and the symptoms that become apparent during the stages of emerging stock markets. These events and symptoms will show up in varying degrees, depending on each market’s peculiarities. Obviously, the more extreme they are, the more likely it is that it will be possible to identify which phase of the cycle the stock market is moving into.
Phase Zero
Events
• Long-lasting economic stagnation or slow contraction in real terms.
• Real per capita incomes are flat or have been falling for some years.
• Little capital spending, and international competitive position is deteriorating.
• Unstable political and social conditions (strikes, high inflation, continuous devaluations, terrorism, border conflicts, etc.)
• Corporate profits are depressed.
• No foreign direct or portfolio investments.
• Capital flight.
Symptoms
• Little tourism (unsafe)
• Hotel occupancy is only 30%, and no new hotels have been built for several years. Hotels are run down.
• Curfews at night.
• Little volume on the stock exchange.
• Stock market has been moving sideways or
Because investing in emerging markets has become a very popular subject, a closer analysis of how markets really “emerge” may be in order.
In many ways, stock market cycles closely resemble the human life cycle. First, stocks are in an embryonic stage. Then, when they reach adolescene, they grow very rapidly (bullish phase). During this stage, they are accident-prone
(crashes).Later, markets mature, lose some of their energy and volatility, then become tired and finally die (bear markets).
Fortunately for stock markets, there is usually life after death. A new cycle begins that, like reincarnation, is very different in nature from the previous cycle. This discussion focuses on the events that tend to occur and the symptoms that become apparent during the stages of emerging stock markets. These events and symptoms will show up in varying degrees, depending on each market’s peculiarities. Obviously, the more extreme they are, the more likely it is that it will be possible to identify which phase of the cycle the stock market is moving into.
Phase Zero
Events
• Long-lasting economic stagnation or slow contraction in real terms.
• Real per capita incomes are flat or have been falling for some years.
• Little capital spending, and international competitive position is deteriorating.
• Unstable political and social conditions (strikes, high inflation, continuous devaluations, terrorism, border conflicts, etc.)
• Corporate profits are depressed.
• No foreign direct or portfolio investments.
• Capital flight.
Symptoms
• Little tourism (unsafe)
• Hotel occupancy is only 30%, and no new hotels have been built for several years. Hotels are run down.
• Curfews at night.
• Little volume on the stock exchange.
• Stock market has been moving sideways or