Commentary
Since the fadeout of the first round of the banking crisis, the market has calmed down as if nothing had happened. Recession probability edged up, but most believe advanced economies would be in more trouble than emerging economies. This has also been the standard tone of international organizations like the International Monetary Fund (IMF). In their latest outlook, they are also more bullish on emerging economies in quite many aspects as usual. However, casual observation suggests this is not the case if we focus on bust rather than boom.
Regarding emerging economies similar to third or fourth-tier stocks (growth stocks) and advanced economies as the first or second-tier, growth stocks tend to be volatile and perform much better in bull but much worse in bear markets. The underlying reason for high volatility is the high leverage behind them. Emerging economies and growth stocks are alike because their gearing ratios are higher than advanced economies or large caps. Naturally, the magnitudes are magnified, whether in the up or down direction, happening in boom (bull) or bust (bear) markets….