Offshore Capitalist

Emerging markets show their mettle

From The Observer

Emerging markets have been the place to invest over the past decade. While the FTSE 100 is down more than a quarter since it peaked in December 1999, and the S&P 500 in the US by 28%, markets in Brazil, India and Russia have more than trebled in value, while China has doubled, according to figures compiled for Cash by BGC Partners.

The more recent performance of emerging markets has also been better than developed ones, undermining the traditional view that they overreact to bad news. And Bryan Coyne, head of emerging markets at BGC Partners, thinks “there’s no reason why these markets shouldn’t continue to outperform mature markets”.

Statistics alone suggest he could be right. In 1999, emerging markets accounted for about 20% of global GDP; by next year that should be closer to 50%. That is not just because developed markets such as the US and the UK are shrinking: emerging markets’ GDP growth has been 4% to 5% ahead of developed ones for much of the past two decades and, while they have been hit by the global recession, they should grow by about 2% this year, according to estimates from JPMorgan.

“Last year was a stress test for the new paradigm in emerging markets,” says Claire Simmonds, an emerging markets portfolio manager for JPMorgan. “The most surprising thing is how resilient they were.” She thinks they are “too big to ignore”, accounting for 80% of the world population, 70% of global foreign exchange reserves and half of world exports – yet only 12% of global market capitalisation. “Our view is that the growth premium is going to remain.”

The arguments for that outlook are becoming familiar: while we in the west are encouraged to reduce our consumption of durables, the rapid increases in wealth and urbanisation across emerging markets means they are taking over as the engines of growth.

While car sales in developed markets fell sharply in 2008, in Bric (Brazil, Russia, India and China) economies there was barely a dip, and they are now firmly on an upward trend; demand for mobile phones in these areas is expected to more than double between 2005 and 2011; the take-up of financial services is also rising sharply.

“You can now talk about a domestic growth engine that did not exist 20 years ago,” says Slim Feriani, a fund manager with emerging market specialists Progressive Developing Markets. “The consumer in emerging markets is starting from a low base.”

via Emerging markets show their mettle | Money | The Observer.

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