One veteran emerging-market investor is fond of saying that emerging markets are the ones where risk is priced in and developed markets are the ones where risk is overlooked. For many years, he and others like him were lonely voices. But today it seems the whole market agrees, which is a sure sign of trouble brewing.

Private bankers are pushing emerging markets alongside gold as a safe-haven investment. Santander, celebrated as one of the few European winners from the global financial crisis, chose to raise capital in Brazil rather than Europe. UK insurer Prudential tried earlier this year to turn itself into an Asian insurer. Once risk-free eurozone sovereign debt is now beset with sceptics willing to predict the break-up of the euro. Markets waited on tenterhooks to see if the Irish government could sell its €1.5bn Eurobond earlier this year. Yet Belarus, an economy less than a quarter the size of Ireland's, tapped a planned $1bn Eurobond for an extra $400m in the same month as Ireland's nail-biter.
In case you are wondering, this is the same Belarus that over the past 18 months has run arrears on payments for oil imports and public sector salaries, and required a $2.5bn International Monetary Fund (IMF) loan and a $2bn loan from Russia, a quarter of which the Russians later refused to disburse. Perhaps investors are looking at the IMF's creditworthiness rather than that of Belarus. Or perhaps they are just not looking very hard.
Mind the gap
The jittery response of the market to a very modest 25-basis-point rate hike in China hinted that many investors had been relying on the Asian growth story to justify rising emerging market valuations, at a time when global demand is under the shadow of high unemployment in the US and European fiscal austerity.
Maybe bank balance sheets in Latin America are in better shape than those in the US and Europe. But we have long mentioned that those in China are opaque at best, and combined with the fall of a top 10 bank in Russia, it all suggests that we should not be complacent about the solidity of the BRICs (Brazil, Russia, India and China).
Loan classifications and reporting standards across emerging markets are generally weaker than those in developed markets, and the gap may widen as developed market regulators lead the pressure for greater transparency. If there is a growing consensus that emerging markets will deliver the best returns then it is equally likely that the next unpleasant surprise will also come from emerging, rather than developed markets.

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