The Good, Bad, and Ugly of Emerging Markets

From Zero Hedge:

With Europe now seemingly in exile from even the bravest knife-catcher value-manager, and, despite media protestation, US equities facing weak macro data and a fiscal cliff of epic proportions; it is no surprise that everyone and their mom thinks emerging markets are the place to be. However, as UBS notes today, not all EM balance sheets (whether government, corporate, or private) are the same and they break down the low, medium, and high risk balance sheets across Asia, LatAm, and EMEA. As is evident in Europe, high debt levels are detrimental to economic growth and equity returns. Solid government accounts generally reward policymakers in such markets with valuable policy flexibility, while healthy consumer balance sheets allow credit growth to be a strong domestic growth driver. In a slow and uncertain global growth environment, pillars to support growth are crucial and are market differentiators - especially if global contagion spreads as we suspect.

• Low risk. In sum, Indonesia, Malaysia, Philippines, Peru and Russia appear best positioned. Strong balance sheets that support sustainable growth are rewarded by investors by relatively high multiples, in all cases except Russia, where concerns over corporate governance weigh heavily.
• Medium risk. China, South Korea, Taiwan, Thailand, Chile, Colombia, Mexico, Czech Republic, Egypt, Hungary, Poland and South Africa are all medium risk. They display either one area of remarkable weakness, such as consumer credit in Korea and high government indebtedness in EMEA, or are just average in all categories, like Czech Republic.
• High risk. Those countries with have the highest balance sheet risks are Brazil, India, Morocco and Turkey. In the case of Brazil and Turkey, the risk is reflected in cheap valuations.

http://www.zerohedge.com/news/good-bad-and-ugly-emerging-markets