Emerging Markets vs. the Auto Industry

An eye-opening factoid on emerging markets’ ascent, and the auto industry’s descent:

Earnings in the emerging countries have grown in double digits, averaging 25
percent in 2004 and 10.5 percent last year. Return-on-equity has almost doubled
from 11 percent to 19 percent since 1999. Dramatic improvements have been shown
in the health of corporate balance sheets, achieved through earnings growth and
debt reduction. An enhanced regulatory environment, improved corporate
governance and greater liquidity have started to occur in many of the emerging

The result? Many emerging market debt issues now have a better overall credit
ratings than General Motors and
. [Emphasis mine]

[via Institutional Investor]


  1. Andy Nelson says:

    This sounds like a “my dad can beat up your little brother” argument. Although it is sad to think of GM as the little brother of the US economy. If I had a choice between putting 100% of my retirement fund in GM bonds or the sovereign debt of Poland, I’d go with the Zloties, unless I only had 6 months to live.
    The article is an example of another tautological conclusion from analysing indexes. The index is put together by selecting 26 markets based on their growth rate (and the weak ones are continuously replaced), then analysts act surprised when the index shows a higher than average growth rate.
    It is more interesting to try to predict which non-emerging market will begin to emerge and then get captured by one of the EM indexes or large EM funds. My guess, based on advice from my barber who has just returned, is Nicaragua.

  2. On a related note, Bill Gross at Pimco pointed out earlier this month…
    When one can buy a U.S. agency guaranteed FNMA mortgage at a higher yield than almost all emerging market debt, then there exists an irrational pricing of credit.