Emerging Markets: The Haves and Have Nots

“Despite their fantastic recent growth record, investors need to be very cautious about emerging markets,” says chief investment officer Eric Bushell in CI Funds’ latest Perspective Online. Their growth momentum is posed to decelerate due to high commodity prices and slippage in export growth as developed economies slow down.

But it won’t be bad news across the board for emerging countries. “The emerging market universe will split into the haves and have not’s,” claims Bushell, with the dividing line being current account positions. Those countries with good surpluses and foreign-currency reserves, like China, will continue to enjoy access to access to capital while those with deficits, such as India, Indonesia, Vietnam and Eastern Europe, will face more difficult adjustments.

Bushell thinks the impending global growth scare will “quell the inflationary storm.” But if governments in emerging countries find inflation fighting unpalatable, growth may maintain momentum longer “and deliver a boomerang back to the U.S.” in the form of greater inflationary pressures. The implication from Bushnell’s commentary in Perspective Online would seem to be that the world could face an unpleasant choice between hyperinflation and a 1982-1983 style deep recession to bring inflation under control.

Comments

[NOWHEREMAN:]

You apparently wrote this before the Commodity driven Russian Incursion into Georgia.

While Surpluses may be a Pre-Conflict American Simulation, the Reality suggests an across the board increase by all merging economies to get what they can while they can, especially those without large Military Arms or Nuclear Devices.

The establishment of an Economic Zone within Asia equivalent to the EuroZone will take place within the next 12 months. Russia will probably be excluded. This Asean Zone will be have a greater impact on the developed countries than the EU ever had. The Manufacturing Might of the Developed World will be within their boundaries, how they use this is moot.

IMHO, the inflationary concerns you voice are VERY Real but their choices will be No Growth or Fast Growth, the Effects of previously IMF imposed economics are still remembered. The Current Governments are shakey at best. Japan is proposing a Stimulus Package much larger than anticipated, The Chinese have taken Inflationary Concerns out of their Vocabulary and New Zealand/Australia are about to decrease interest rates. The Stronger WAR Premium
inspired Dollar will increase Inflationary expectations within the EU.

Given the current Real conditions, Commodities will only pause before the final big push to the upside. The evolvement of a larger conflict will exacerbate this move.

2008 Aug 31 04:20 AM