Why emerging markets offer far less “fiscal baggage”


Nov. 20 2020, Updated 4:14 p.m. ET

Finally, the majority of the emerging market countries have much less “fiscal baggage” than their developed market counterparts. For developed countries (EFA), gross government debt is well above 100% of gross domestic product; in emerging markets (EEM), the ratio is just 34%.

Market Realist – The graph above shows the government debt for emerging (EEM) and developed markets (EFA) as a percentage of their gross domestic product (or GDP). As you can see, emerging markets are much better off than their developed counterparts in that regard.

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Russia (RSX) has the lowest debt compared to its GDP, with 13.4%, followed by China (FXI), Indonesia (IDX), South Korea (EWY), Brazil (EWZ), and India (EPI), with ratios of 22.4%, 26.1%, 33.8%, 56.8%, and 67.7% respectively. Among developed markets, most notably, Japan (EWJ) has a very high debt level compared to its GDP at 227.2%. In other words, Japan‘s debt stands close to a whopping 2.27 times its GDP.

Surprisingly, emerging markets seem to be better than developed markets at keeping their debt levels at bay. But by most fiscal parameters, developed markets are better placed than emerging markets.

Please read the next part of this series to see how cheap emerging market currencies can improve your total returns.


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