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Emerging Markets in an Upside Down World: Challenging Perceptions in Asset Allocation and Investment

Book Description

The world is upside down. The emerging market countries are more important than many investors realise. They have been catching up with the West over the past few decades. Greater market freedom has spread since the end of the Cold War, and with it institutional changes which have further assisted emerging economies in becoming more productive, flexible, and resilient. The Western financial crisis from 2008 has quickened the pace of the relative rise of emerging markets - their relative economic power, and with it political power, but also their financial power as savers, investors and creditors.

Emerging Markets in an Upside Down World - Challenging Perceptions in Asset Allocation and Investment argues that finance theory has misunderstood risk and that this has led to poor investment decisions; and that emerging markets constitute a good example of why traditional finance theory is faulty. The book accurately describes the complex and changing global environment currently facing the investor and asset allocator. It raises many questions often bypassed because of the use of simplifying assumptions and models. The narrative builds towards a checklist of issues and questions for the asset allocator and investor and then to a discussion of a variety of regulatory and policy issues.

Aimed at institutional and retail investors as well as economics, finance, business and international relations students, Emerging Markets in an Upside Down World covers many complex ideas, but is written to be accessible to the non-expert.

Table of Contents

  1. Cover
  2. Half Title page
  3. Dedication
  4. Title page
  5. Copyright page
  6. Foreword by Nigel Lawson
  7. Acknowledgements
  8. Introduction
    1. I.1 Upside Down: Perception vs Reality
    2. I.2 The Structure of the Book
  9. Chapter 1: Globalisation and the Current Global Economy
    1. 1.1 What is Globalisation?
    2. 1.2 Economic History and Globalisation
    3. 1.3 Recent Globalisation
  10. Chapter 2: Defining Emerging Markets
    1. 2.1 The Great Global Rebalancing
    2. 2.2 Investing in Emerging Markets
    3. 2.3 Emerging Market Debt in the 20Th Century
    4. 2.4 The Growth of Local Currency Debt
    5. 2.5 Why Invest in Emerging Markets?
  11. Chapter 3: The 2008 Credit Crunch and Aftermath
    1. 3.1 Bank Regulation Failure
    2. 3.2 The 2008 Crisis
    3. 3.3 Depression Risk
    4. 3.4 Global Central Bank Imbalances
  12. Chapter 4: Limitations of Economics and Finance Theory
    1. 4.1 Theoretical Thought and Limitations
    2. 4.2 Economics, a Vehicle for the Ruling Ideology
    3. 4.3 Macroeconomics
    4. 4.4 Microeconomic Foundations of Macroeconomics
    5. 4.5 Bounded Decisions and Behavioural Finance
  13. Chapter 5: What is Risk?
    1. 5.1 Specific and Systematic Risk
    2. 5.2 Looking Backwards
    3. 5.3 Uncertainty
    4. 5.4 Risk and Volatility
    5. 5.5 Risk in Emerging Markets
    6. 5.6 Rating Agencies
    7. 5.7 Capacity, Willingness, Trust
    8. 5.8 Sovereign Risk: A Three-Layer Approach
    9. 5.9 Prejudice, Risk and Markets
  14. Chapter 6: Core/Periphery Disease
    1. 6.1 the Core/Periphery Paradigm
    2. 6.2 Beyond Core/Periphery
  15. Chapter 7: The Structure of Investment
    1. 7.1 Misaligned Incentives
    2. 7.2 Confused Incentives
    3. 7.3 Evolutionary Dynamics, Institutional Forms
    4. 7.4 Network Theory
    5. 7.5 Game Theory
    6. 7.6 Investor Structure and Liquidity
    7. 7.7 Market Segmentation
    8. 7.8 Investor Base Structure Matters
  16. Chapter 8: Asset Allocation
    1. 8.1 Asset Classes
    2. 8.2 How Asset Allocation Occurs Today
    3. 8.3 From Efficiency Frontiers to Revealed Preferences
    4. 8.4 Asset Allocation vs Manager Selection; Active vs Passive
    5. 8.5 Allocating at Sea
  17. Chapter 9: Thinking Strategically in the Investment Process
    1. 9.1 Thinking Strategically
    2. 9.2 Scenario Planning
    3. 9.3 Global Structural Shifts Ahead?
    4. 9.4 Investment Process in Emerging Debt
    5. 9.5 Conclusion
  18. Chapter 10: A New Way to Invest
    1. 10.1 Sense-Checking Assumptions
    2. 10.2 Assessing Liabilities
    3. 10.3 Your Constraints
    4. 10.4 Consider Changing Your Constraints: Agency Issues
    5. 10.5 Building Scenarios
    6. 10.6 Understanding Market Structure
    7. 10.7 Asset Allocation
    8. 10.8 Meta-Allocation: Toolset Choice
    9. 10.9 Follow the Skillset
    10. 10.10 Portfolio Construction and Monitoring
  19. Chapter 11: Regulation and Policy Lessons
    1. 11.1 Regulating Financial Institutions: New and old Lessons
    2. 11.2 What to do About Systemic Risk?
    3. 11.3 Wish List for Emerging Market Policymakers
    4. 11.4 Reserve Management and the International Monetary System
    5. 11.5 What Investors Can Expect from HIDC Policymakers
    6. 11.6 What Investors Can Expect from Emerging Market Policymakers
  20. Chapter 12: Conclusion
    1. 12.1 A Final List…
    2. 12.2 … for an Upside Down World
  21. Further Research
  22. Disclaimer
  23. Glossary
  24. Bibliography
  25. Index