The recent weakness in emerging market equities is structural. The developing world has reached a crossroads in the search for a new economic model to replace an existing approach which, despite its success to date, has run its course.
The current economic model in emerging markets rose from the ashes of the 1997-98 crisis. That episode ripped bare the Washington Consensus that had dominated emerging market economic thinking since the fall of the Berlin Wall.
The Washington Consensus espoused the then current liberal economic thinking – fixed or quasi-fixed exchange rates, fiscal discipline, free trade, and round after round of privatisations. The model brought early successes in taming inflation, but failed in most other areas. The rapacious behaviour of multinational organisations during privatisations, in particular, convinced national governments that the Consensus was a dressed-up model of neo-colonialism.