By the middle of the last decade, says Ruchir Sharma, head of emerging-market equities at Morgan Stanley, "it seemed that every man and his dog could raise money for emerging markets. By the end, it appeared that just the dog would do." But investors should be wary of the popular idea that the emerging world as a whole will continue to advance rapidly, with the charge led by the relentlessly expanding BRIC states of Brazil, Russia, India and China.
This popular notion is due to the unprecedented emerging-market growth spurt of the 2000s, which encompassed almost every developing nation. But that was a historical anomaly, says Sharma. It was due largely to "a worldwide flood of easy money". As that has receded and the indebted developed world cuts back on foreign imports, emerging markets face a "new normal". As in previous decades, some countries will do better than others.
Economic development is "like a game of snakes and ladders... There is no straight path to the top and [it's] easier to fall than to climb." For instance, in the 1960s Sri Lanka and Burma were heralded as "another Asian tiger". Only a few countries will become "breakout nations"; other hitherto strong performers are likely to fall by the wayside.
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So who's up and who's down? Sharma is not a great fan of the BRICs. Brazil and Russia have grown dependent on booming commodities markets, a trend Sharma likens to the dotcom boom. The odds "are even" that India could "regress to become the next Brazil", which has prioritised building a welfare state at the expense of infrastructure. As for China, its looming shadow is about "to retreat to realistic dimensions".
The emerging world's "gold medallist" is Korea, reckons Sharma, while he is also a fan of Indonesia, "a commodity economy that works". Another country that looks set to do well is Turkey. In emerging Europe, there are two countries likely to join the ranks of the rich elite: Poland, the only country on the continent to avoid recession in 2009, and the Czech Republic. "For sheer readability and insight on [the developing world]," says The Wall Street Journal, "you won't find a better choice" than Sharma's book.
Breakout Nations by Ruchir Sharma is published by Allen Lane, £14.99.
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