I am always grateful to Albert Edwards at Société Générale. Sometimes I worry that at Moneyweek we are prone to focusing too much on the downside of events. But then I read his work and realise that we really don’t.
We have long been in full agreement with him on the “idiocy” of the idea that investing in emerging markets would produce superior returns to developed markets but with less risk (see many Moneyweek cover stories past) and we’ve also worried about a new balance of payments crisis in the emerging markets.
But, while we are beginning to see value in some emerging markets (see last week’s magazine for much, much more on this) despite the endless economic problems there, he isn’t.
Subscribers can read about the many and varied problems of the emerging markets in last week’s magazine. But Edwards points out that it isn’t about just a few countries “who have allowed their current account deficits to get out of hand.” It’s about “the beginning of a process where the most wobbly domino falls and topples the whole precarious rotten risk loving edifice that our policymakers have built.”
The turbulence in the east is likely to lead to a “renewed global recession” with “waves of deflation” heading west as China is finally forced to devalue its currency in the face of “an unrelenting loss of competitiveness” (thanks to the falls in the currencies of all its competitors) and a need to prevent economic collapse.
Renminbi devaluation will terrify the markets, says Edwards. “This is one domino it will not pay to be resting under as it comes crashing to the ground.”
See what I mean? You might think Moneyweek has a tendency to pessimism, but Edwards manages to make our current emerging market view – that much of the pain is already in the price – seem relentlessly optimistic.