Newspaper article International New York Times

As Appetite for Risk Grows, 'Fragile Five' Are Thriving ; Turkey and Indonesia Lead Pack 6 Months after Fears of Emerging Market Crash

Newspaper article International New York Times

As Appetite for Risk Grows, 'Fragile Five' Are Thriving ; Turkey and Indonesia Lead Pack 6 Months after Fears of Emerging Market Crash

Article excerpt

According to research from Merrill Lynch, almost all of this group of countries, including Indonesia and Turkey, have been among the 10 best-performing assets this year.

The Fragile Five have become the Fantastic Five.

Just six months after fears of an emerging-market meltdown rattled markets around the world, stocks and bonds in the so-called Fragile Five economies -- Turkey, India, Indonesia, Brazil and, to a lesser extent, South Africa -- have become the primary targets for yield-hungry global investors.

According to research from Merrill Lynch, almost all of those countries have been among the 10 best-performing assets so far this year. Indonesia, for instance, ranks No. 1, with a return of 30 percent, while Turkey follows in second place with a return of 25 percent.

India had a 20.4 percent return, putting it in the top five, and Brazil returned a solid 15.2 percent. Once-shunned Brazilian government bonds clocked a gain of 15.4 percent.

The laggard fifth member of the club, South Africa, did not crack the top 10 but still offered a respectable showing, with a 10 percent increase for its stock market this year.

All told, not a bad half-year report card for a group of countries that, because of their volatile currencies, low levels of growth and political uncertainty, were not long ago seen as a threat to the global economy.

There have been positive developments in all the Fragile Five economies, but the most significant factor behind these surging markets has been the continuing environment of superloose monetary policy.

Interest rates in all the major markets, save Britain, are edging toward zero, and assets at hedge funds and broader money management firms are hitting new highs.

More than ever, institutional investors are facing pressure to reach for yield and discount risk, and the result has been a sustained flow of cash into the Fragile Five markets.

"Investors' risk appetite remains buoyant and has supported flows into emerging markets over the last several months," Charles Collyns, chief economist at the Institute of International Finance in Washington, said in a recent report on flows into emerging markets. …

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