Will (should) investors return to emerging countries despite their negative fundamentals?

To varying degrees, emerging countries (excluding China) are affected by a deterioration in their terms of trade caused by both currency depreciation , under the effect of the rise in risk aversion , and a fall in commodity prices under the effect of the fall in global GDP. The deterioration in the terms of trade is eroding emerging countries’ growth outlook and increasing their economic and financial fragility, albeit with a high degree of heterogeneity between emerging countries: the question for investors is whether the additional returns offered by emerging country bonds or equities are sufficient to cover this heightened risk. A comparison of the current situation with past developments shows that excess returns on emerging country assets have never covered the emerging currency risk. This ought to discourage investors.