There has been talk of emerging markets providing a haven from Western turmoil: they are growing much faster and have far less government debt. But while the fundamentals are encouraging, that doesn’t make them a safe bet now.
For starters, as Tobias Kaiser points out in Welt am Sonntag, growth will be weaker in emerging economies over the next few months. Many are grappling with inflation, and recent interest-rate rises to temper price rises will slow growth.
The weakening growth outlook in Europe and the US will affect commodity-based Latin American markets as well as export-orientated Asian ones. Intra-regional trade in Asia has expanded rapidly, thanks to the rise of China, but Asia has yet fully to shake off its dependence on the West. As Standard Chartered puts it, Asia has “diversified, but not decoupled”.
The main problem for investors, however, is that whether or not emerging economies have decoupled, emerging stockmarkets certainly haven’t. The MSCI Emerging Markets index has slid by just as much as America’s S&P 500 index since markets peaked in May. In times of trouble, investors ditch risky assets. Emerging markets are set to keep struggling, says HSBC’s Pablo Goldberg, until “there are signs that economies are re-accelerating”.