Emerging Markets in an Upside Down World: Challenging Perceptions in Asset Allocation and Investment

Chapter 3

The 2008 Credit Crunch and Aftermath

The Five Stages of Grief¹

(Paper written for Ashmore clients, July 2011)

The well-known Kübler-Ross model of grief has five stages: denial, anger, bargaining, depression and acceptance. Could these five, overlapping, stages be seen in reaction to other psychological shocks, including the prospect of major economic hardships ahead?

The cause of the grief

For there to be a grieving process, there has to be something to grieve. Let us suppose that after three decades of financial deepening, the last of which was excessive, Western Europe and the US now face several years of painful deleveraging. The loss they feel is the death of the levered model, which enabled these developed countries to live beyond their means. Their loss is also a loss of prestige in the world, as their economic models have failed and their policies have created crises. It is a loss which will make the US and Western Europe poorer and more dependent on emerging markets – the part of the world without the 30-year build-up of leverage and without the same problems. National and personal budgets are going to have to be cut. To protect their currencies, several developed economies will need to ask for help from the large surplus reserve countries. Think of the following analogy: many of the developed countries have experienced a death. They have a body on their kitchen floor and there is a lot of blood. Nothing will revive the corpse. We might as economists know how ...