NewsNorth AfricaAre emerging markets less attractive than they used to be?


Posted on Wednesday, 26 February 2014 11:36

Are emerging markets less attractive than they used to be?

Investors pulled $9bn from emerging market stock and bond funds in the last week of January due to concerns about lower growth rates and the winding down of the united states Federal Reserve's quantitative easing program. 

Yes Growth in emerging economies fell well short of expectations in 2013, marking the second consecutive year of below-trend expansion. The failure of emerging countries to implement meaningful structural reforms is holding back their growth potential. For the year ahead we fear this trend will continue, as looming elections will again delay needed reform measures. After all, countries holding elections in 2014 account for almost a quarter of emerging market gross domestic product (GDP). Despite these structural challenges, the cyclical backdrop for emerging economies is arguably improving. The stronger global growth we expect should increase external demand, boosting emerging market exports. However, tighter financial conditions arising as the Federal Reserve tapers its bond purchases will likely temper this improvement. The interplay between these structural and cyclical dynamics will not be uniformly felt. Those countries with twin fiscal and current account deficits, such as Turkey, South Africa and India, will have to curtail domestic demand growth and raise rates as the Federal Reserve tightens monetary policy, or else risk even larger deficits and destabilising capital outflows. By contrast, countries with stronger balance sheets, such as South Korea and Mexico, will have more freedom to pursue pro-growth policies and let their exchange rates absorb external shocks. With structural and cyclical forces pulling in opposite directions we project only a moderate rise in GDP growth in emerging economies, from 4.9% in 2013 to 5.2% in 2014. ● Sharmin Mossavar-Rahmani Chief investment officer Private Wealth Management Group, Goldman Sachs



No What we have is a regrettable short-term view about prospects in emerging markets, which doesn't align with the long-term view – that this is where billions of consumers are. This is where there are millions of people getting into the middle class. This is where there are rich natural resources, new forms of innovation taking place and both new markets and sites of production. So this period that we are experiencing in relation to what we can call the 'post-quantitative easing' turbulence is just that: a period. And one in which we will have to absorb surprises and shocks. Every economy in the world today has to confront certain constraints. Every government in the world has to command the technical and political will to overcome those constraints. We have our fair share in emerging markets, but so too have developed countries. But if we recognise we are in an interconnected world, then there will be periods where advanced economies support emerging markets and also vice versa. ● Pravin Gordhan, Finance minister, South Africa

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