concerns about the veracity of Chinese
economic statistics. Yet China’s efforts to
move away from an export- and investment-
led economy to one more dependent on
domestic consumption is essential for its
economic development. It is a significant
transition, so some
volatility on the path
is only to be expected.
‘China’s population
is twice as large as
that of Europe and the
US combined, so
individual sectors can
still grow,’ says
Shearing. He compares
China with California
in the 1990s: as the US recession hit the
rest of the country’s economy, California
continued to prosper. Each region of China is
so disparate, argues Shearing, that it is difficult
to drawmeaningful conclusions about the
whole and apply it to the parts. Indeed, it
is this very diversity within developing
markets that makes it even harder to generalise
about them.
Polina Kurdyavko, Co-Head of Emerging
Market Debt at BlueBayAsset Management,
believes that markets
are underestimating
the prospects of
long-term growth
in many developing
economies and failing
to differentiate
between the good and
the bad stories.
‘For example,’ she
says,‘Mexico has
a robust reform agenda and strong legal
framework, which we believe would make
the implementation of future infrastructure
programmes successful.We also like countries
such as Chile, which has a very high level
of corporate governance combined with
a supportive policy framework.’
Kurdyavko thinks that while the commodity
price cycle does have an influence on the
outlook for individual countries, other factors
can be more significant.‘[India is] a commodity
importer, which has seen strong progress on
the reform agenda and has therefore been a
favourite destination for many investors.
However, in the case of Turkey, the country has
not benefited to the same extent fromweaker
commodity prices because of structural and
domestic issues and a government framework
that is not supportive of the economy.’
The emerging market crises of the 1980s
and 1990s, and the structural reforms that
followed, combined with their rapid growth
and integration into the global economy,
mean that developing countries have become
much more diverse.Wealthier countries such as
South Korea,with its successful manufacturing
and biotech industries, are hugely different
from those in sub-SaharanAfrica or Latin
America,where financial and political instability
might threaten the whole fabric of society.
‘Thirty years ago,’ Shearing adds,‘a lot of the
economies we would now regard as emerging
were in very similar positions.Many of the
structural issues were the same.’
The very fact that the US has begun to
raise its interest rates is a sign that it is on a
more secure financial footing. It could be seen
as a good thing since it indicates that the
world’s financial markets can finally start to
return to normality after more than seven
years of financial turmoil. For the past two
years, emerging markets should have also taken
measures to prepare for higher US rates, such
as by hedging currencies.
Haldane himself said in his speech that
he believed there was evidence to suggest
that this time we might be lucky, and avoid
the third stage of the financial crisis after all.
Emerging markets may not grow as fast as
they have been but in most cases growth is
still respectable.
1, 2
ANALYSIS
Balance sheet
Growth within emerging markets
has slowed but discerning investors who look
beyond the headlines should still be able to find
good opportunities.
EMERGING MARKETS
Markets are failing to
differentiate between
the good and the bad
stories
THE INVESTOR
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