As the dust settles in East Asia, the hunt for new markets goes on

The whole Russian market is capitalised at $39bn, a bit more than the value of Barclays Bank. The potential is obvious

For anyone investing in emerging markets, August was indeed a wicked month. The plunge of the markets in East Asia wiped out the profits of the first half of the year of the whole sector - not just the profits from the collapsing East Asian markets, but the profits on the other markets which had not fallen at all.

Now in September the professional investment managers are pondering what happens next. Is the entire concept of emerging market investment gravely damaged and should there be a flight to the supposed safety of more established markets? Or will people distinguish between the various regions more and more, switching from East Asia to other areas like Latin America and Eastern Europe?

It is really too early to try to answer that question because the East Asian markets and currencies have yet to settle down. Still, there are a couple of early pointers to the direction that investment flows will take in the coming months, three of which deserve further attention.

The first of these is the increasingly clear distinction being made between the economic policies of different East Asian countries. One of the most alarming features of the markets during August was the systemic nature of the collapse: fundamentally sound currencies (like the Hong Kong dollar) were hit along with Indonesian rupiah and the Malaysian ringgitt. Now, gradually, an element of order is returning. A clear distinction is being made between countries whose governments have acknowledged past misjudgments and are starting to correct them (like Indonesia), those that keep on making policy errors (like Thailand), and those whose most obvious response is to blame everyone else (like Malaysia).

This discrimination is much more healthy than blanket condemnation. Ultimately what matters in determining the price of equities is the financial performance of the companies whose shares are being traded; and that performance is influenced profoundly by the quality of economic management of the countries in which they are based. Discrimination is all; systemic share price movements are irrational and destructive.

The second pointer is that the flight from East Asian equities has not meant a flight from the area altogether, for much of the money seems to be switching into local bonds. Currencies are starting to calm and while it will be many months before confidence is rebuilt, at least they offer clear value. James Capel's emerging market team notes that some Asian currencies are overshooting their equilibrium levels, which in theory ought to offer buying opportunities.

Some of these buying opportunities will be in local bonds. The inevitable policy response to a crisis of overheating is a squeeze on public spending, as is happening for example in Malaysia. Anything which reduces pressure on the capital market, like cuts in public spending, makes fixed interest investments more attractive. It follows once East Asian currencies are perceived to have bottomed out, bonds will be the principal beneficiary.

The third pointer is the fact that there has been virtually no fall-out beyond the East Asian region. More than this, the demotion of the previous generation of stars has encouraged a hunt for new ones. BNP, which has recently established a unit looking at investments on the fringe markets, is promoting investment in a number of East European markets: the equities of Bulgaria, Serbia and Croatia, treasury bills in Ukraine and Romania, and municipal paper in Russia.

The upgrading of Eastern Europe and the return to fashion of Latin America have been two of the features noted in a new study by American Express Bank's economics team. It has calculated a "tiger index" which scores different countries' quality of economic policy-making and performance; the top 20 and the bottom five are shown on the chart. As you can see the "conventional" tigers, all in East Asia, still come out top despite the recent hiccups. But there are some interesting other countries creeping up the league. The Czech Republic and Poland are there; so are Argentina and Chile; even Russia just creeps in. Amex notes that the East Asian countries have not in general improved their scores over the last 10 years, while countries in Latin America and Eastern Europe have done so.

Of course anyone wanting to invest in Russia must be aware of the risks involved. But the value is stunning. The whole Russian market is capitalised at $39bn. That is a bit more than the market capitalisation of Barclays Bank, but much less than HSBC and Lloyds. Rationally, should the entire commerce and industry of Russia be worth the same as that of our third largest bank? The potential is obvious: Russia does not need to do very well to do a whole lot better.

A further small boost to Russian investment will come from its inclusion in the index of emerging markets run by the World Bank affiliate, the IFC, along with Israel, Egypt, Morocco and Slovakia. Being included in an index of itself means little - except that it shows that the world investment community is takingthese countries seriously.

Of course things can still fall apart in Russia as anywhere else. The disruption of East Asia could still spread to the other time zones. But each day that passes makes this less likely. Accordingly it seems sensible to expect the emerging markets of the American and European time-zones to receive much more attention from investors in the months to come. At some stage the hunt for more and more outlandish countries will reach its natural conclusion.

But there is momentum in the quest for value in hitherto untrodden ground. Who would have thought, five years ago, that a large investment bank would be urging its customers to consider buying Ukrainian treasury bills?

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk