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Life Cycles of Emerging Markets
Because investing in emerging markets has become a very popular subject, a
closer analysis of how markets really “emerge” may be in order.
In many ways, stock market cycles closely resemble the human life cycle. First,
stocks are in an embryonic stage. Then, when they reach adolescene, they grow
very rapidly (bullish phase). During this stage, they are accident-prone
(crashes).Later, markets mature, lose some of their energy and volatility, then
become tired and finally die (bear markets).
Fortunately for stock markets, there is usually life after death. A new cycle
begins that, like reincarnation, is very different in nature from the previous
cycle.
This discussion focuses on the events that tend to occur and the symptoms that
become apparent during the stages of emerging stock markets. These events and
symptoms will show up in varying degrees, depending on each market’s
peculiarities. Obviously, the more extreme they are, the more likely it is that
it will be possible to identify which phase of the cycle the stock market is
moving into.
Phase Zero
Events
• Long-lasting economic stagnation or slow contraction in real terms.
• Real per capita incomes are flat or have been falling for some years.
• Little capital spending, and international competitive position is deteriorating.
• Unstable political and social conditions (strikes, high inflation, ...