When musing about whether the emerging markets are converging with the industrialised countries, most market analysts mistakenly focus on improving emerging market fundamentals. In so doing, they miss the bigger picture. The main reason for emerging market convergence is that there are a number of developed countries whose economic fundamentals are deteriorating at a more rapid pace than those in the emerging markets are improving.

The point is perhaps best illustrated by a reply I received from a seasoned Wall Street trader when I recently asked him where he thought the next emerging market debt crisis would take place. Without missing a beat, he replied that it would occur in Greece, Italy or Portugal. On examining each of these three countries, he found that their public debt levels and public debt dynamics were appreciably worse than those in large emerging market economies such as Brazil, Russia, India and China.