Advanced Emerging Markets: The Road to Graduation

Emerging Markets Research, Barclays Capital, October 2010

57 Pages Posted: 8 Feb 2011

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Piero Ghezzi

Barclays Capital

Date Written: October 5, 2010


By the third quarter of 2009, once fears of re-enacting the Great Depression were dispelled, it became clear that many of the positive trends that emerging economies had displayed prior to the crisis were here to stay: Defying the skeptics, the fundamental nature of emerging markets’ stellar economic performance, the commitment to external deleveraging and fiscal consolidation, the deepening of domestic market consumption have all proven to be more than the temporary result of exceptionally good global conditions.

The global crisis marked a turning point in the way financial markets think of the economies grouped under the emerging markets umbrella. Similar, even if not yet equal to commodity exporting peripheral advanced economies such as Australia or Canada, a subset of EM countries showed a growing distance from the high risk-high stakes stereotypes of the 1990s.

These economies demanded a new approach that mixed traditional analysis with a more modern perspective. The shortcomings at the micro level – the political volatility, the unequal income distribution, the lagging infrastructure and human capital – were still present. But the monetary, fiscal and debt management policies were converging with those of their developed peers, and the political process was becoming smoother, reflecting the growing macroeconomic consensus that fed, to a large degree, from the very success of these policies.

With their growing output decoupling from those of G7 economies, many EM economies offered an unprecedented scope for global portfolio diversification. Increasingly reliant on their local markets, they were no longer dependent on hard currency debt financing; credit risk considerations took the back seat to leaning-against-the-wind FX intervention; and monetary policy issues were reminiscent of those of advanced economies.

What countries had, in financial terms, emerged from the stormy 1990s to compete (politically and economically) in the globalized new millennium? If EM remains a continuum that cannot be easily partitioned, a few notable members can be singled out as the exponents of a new breed of countries poised to exhibit solid and stable growth (and a concomitantly strong market performance) in the 2010s. Defying conventional wisdom, these countries are on their way to graduate to the developed world while keeping their idiosyncratic differences with traditional advanced economies.

We made the case for this new breed of Advanced Emerging Markets (AEM) in a series of published reports, which looked at the fundamental changes in EM during the 1990s (Advanced Emerging Markets: A reassessment of an asset class, November 12, 2009), ranked their relative strength along the traditional dimensions of long-term growth (Advanced Emerging Markets: The list, December 17, 2009) and documented the drivers and relative performance of their key asset markets, including credit, equity and FX (Advanced Emerging Markets (AEM): Myth and reality, April 13, 2010) and local bonds (Advanced Emerging Markets: Going local, September 23, 2010).

One year on, we decided to look at the main messages of the series: To what extent did the volatile 2010 change our view of these markets? To that end, we re-run our quantitative and statistical illustrations, only to find out, reassuringly, that the results were essentially unchanged. Specific numbers may have changed, but they have left the interpretation and conclusions of our original findings intact.

Because of this, and as a reminder of the long-term implications of the themes in this series, we chose to reprint the papers as they were originally published, with only marginal editorial revisions (updated charts and tables are available upon request).

Somewhat counter-intuitively, the crisis of the past two years was good for many emerging economies. Not only did their economic activity rebound sharply to end up, in many cases, higher than prior to the crisis, but many emerging economies have gained global respect as their share of global output has continued to increase. Ultimately, that global respect is the recognition that the long road to graduation towards advanced economy status may be shorter than skeptics think.

Keywords: Advanced Emerging Markets, Emerging Markets

JEL Classification: F30, G15

Suggested Citation

Levy-Yeyati, Eduardo Levy and Ghezzi, Piero, Advanced Emerging Markets: The Road to Graduation (October 5, 2010). Emerging Markets Research, Barclays Capital, October 2010, Available at SSRN: or

Eduardo Levy Levy-Yeyati (Contact Author)

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires

Piero Ghezzi

Barclays Capital ( email )

5 The North Colonnade
London, Canary Wharf E14 4BB
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics