Value investing in emerging markets: lessons from history

Mr. Market frequently prices businesses based on short-term macro and political fears, which leads to violent swings in share prices. But periods of long-term macro tranquillity are actually quite rare, especially in emerging markets. In 1987, there was a global stock market crash. In fact, the Hong Kong market was hit so hard that it was closed for days before it regrouped and reopened. Then there was the Gulf War in the early 1990s, followed by Latin America’s “Tequila Crisis” in 1994. The next couple of years were fairly quiet, but in 1997 there was the Asian financial crisis, followed by a fullblown panic in most emerging markets by mid-1998.