ED HARRISON: When you talk about that overall thematic, I'm thinking about the conversation
that we just had in terms of how you break down different parts of EM, because basically,
you told me that when people think about emerging markets, a lot of people think in global term,
emerging markets, but within emerging markets, actually, there's a lot of differentiation,
and people should be thinking in those terms.
RASHIQUE RAHMAN: I think that's a great place to start and let me step back a little bit.
Take us back to the late '90s and get us to where we are now and think prospectively as
well.
EM used to be beta to global growth trade in a sense.
If you thought that global conditions were very supportive, growth was robust, and EM
was a great investment opportunities, a boom and bust in that sense.
That type of strategy worked really well.
If we think about the genesis of EM as an asset class over the last, say, 20-25 years,
the late '90s was really an important time, we were getting out of successive crises in
the '90s, Tequila Crisis amongst them, we saw institutionalization of some financial
sector reforms, which included opening up of these economies to the rest of the world.
That was really important.
It led to a rush of inflows into these economies, and this was also happening at a time when
we saw the accession of China to the WTO, and as well successive months monetary policy
easing, particular by the Fed over the 2000.
Late '90s 'til mid-2000s was a really good time for EM.
We saw a rise in commodity prices as a result of China's incessant demand for commodities
and other imported intermediate goods, that was very beneficial for EMs since they opened
up.
It was a virtuous cycle that was manifesting in the late '90s, early 2000s for EM, and
that was the golden time for EMs.
ED HARRISON: As you say that, I'm sensing buttons coming here as always.
RASHIQUE RAHMAN: A big one, and that all changed in early 2010s.
You saw essentially, a slowing down of China, it shifted more towards a consumption orientation
rather than the fixed asset investment orientation.
Growth began to slow in China in part as a result of that.
You also saw an erosion in competitiveness for EMs.
We'll talk about this a lot during our talk.
One of the main indicators I look out for EMs is the real effective real trade weighted
exchange rate.
That's a really good indication of course of measure relative price.
For me, it's an indication of underlying competitiveness.
The big problem for EMs is that they lack competitiveness.
That's the real issue.
Going back to the '90s, 2000s, what you saw was it's easy to grow.
You didn't have to do much.
This was perfect opportunity for EMs to institute deep structural reforms, get them on a much
stronger growth footing for the future.
They didn't really need to do that.
Now, they're in a position where their competitiveness is challenged.
They're struggling for growth now, less reliant on these prior sources of growth like China
demand and things like that.
They're struggling.
EMs in general is struggling for growth.
If you look at the forecasts for EM growth, this year is around 4%.
That's deceptive.
If you take India, China out, let's say, to the bigger EMs, EM in general is growing around
and that's not much more than developed markets.
The market are calling it the secular stagnation of EM and that's, I think, appropriate to
consider that if you look at growth in particular.
EMs have been relatively challenged.
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