The term ‘emerging markets’ is inconsistent and vague and no longer does justice to the category of investments it is used to describe, according to the fixed income specialist arm of BNY Mellon.

In a white paper, Standish Asset Management Company proposed a new concept of “assets tied to economies of risky countries,” or 'ASTERISCS', which it said better conveys the risk and appeal of the assets.

Managing director and senior portfolio manager at Standish Dr. Alexander Kozhemiakin said that ‘emerging markets’ is a “deficient” investment concept.

“Traditional divisions between so-called developed and emerging markets are blurring, as some countries in the former category display higher levels of risk and a more serious degradation of fundamentals than countries in the latter.”

One of the issues with the term raised by the report is that ‘emerging markets’ simultaneously refers to markets as well as countries, which can cause confusion as a single country can have multiple markets, such as equities, bonds, currencies, and real estate.

"It is possible that a country classified as ’emerging’ can have a relatively mature, liquid market. Conversely, the presence of mature, liquid markets does not necessarily mean that a country in which they are operating is risk-free.”

Standish said that the concept of ASTERISCS encourages a multi-asset class approach to risk management, by highlighting that country risk cuts across all asset classes.

“In addition to determining the overall amount of ‘emerging market’ equity or fixed income in their portfolios, investors would be well served by evaluating their total exposure to individual risky countries,” said Kozhemiakin.

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