The global economy has shown mixed recovery during Q32010. But fears of slowdown are not gone. Stock markets have done relatively done well during this quarter. MSCI World rose 13.3% QoQ in Q3 (vs a decline in 2Q2010), with S&P 500 rising 10.7% QoQ (vs a drop of 11.9% in Q2).
US Federal Reserve is expected to introduce additional Quantitative Easing (QE) measures, while China is under global pressure to allow appreciation of its currency, which will undermine its exports. Hence, currency tensions prevail. Emerging economies face challenges related to the inflow of hot money – inflation and asset bubbles.
Let us see how reputed authorities view the future
• International Monetary Fund (IMF) - Forecasts global growth - to expand 4.8% in 2010 and 4.2% in 2011.
• Nouriel Roubini - 40% probability of a double-dip recession and it could occur within the next 12 months.
• Jesper Koll (JPMorgan, Japan) - Probability of a Japanese-styled, global lost decade has risen due to high government intervention. Private sector spending must be empowered.
• Peter Sands (CEO Stan Chart) - Emerging markets, partially delinked from the west, is getting more resilient and recovering strongly.
• Mark Mobius ( Templeton) - The ongoing global currency conflict, which has triggered capital control discussions amongst policy makers, is likely to be unfavorable for the market
Some leading global investment banks (e.g. Goldman Sachs) have refreshed their old stories about Emerging Markets (EM) and now began to sing praises. They say the attraction of developing markets lie in the higher economic growth rates, younger, more dynamic demographics and under-representation in global stock markets. But you have to note that same positives were harped in the early 90‘s, but between 90s-00s, EM delivered a ‘total’ return of 38% much lower than developed markets.
EM are volatile. They suffered three 25%+ losses in the past 20 years but recorded annual returns exceeding 50% during five years . The volatility is caused by international investors, whose risk appetite changes in accordance with their priority and not the host country’s.
Now, it seems that another boom may be on the way due to the displacement of capital caused by the latest financial crises in the developed world. If we follow history, this is good now and for the immediate future. But the volatility will return to EM. A crash is hiding somewhere in the medium term.
US Federal Reserve will continue the QE, which will also contribute to the creation of asset bubbles in EM, which will burst one day. But the million dollar question is when? A recovery in developed markets or a domestic / global crisis could trigger this. All prudent EM governments should take steps to introduce relevant measures to prevent such asset bubbles and subsequent bursting which will hurt the individuals, institutions and organizations within EM (and usually not the international investors).
Do you fear unemployment? Do you want to know about 200+ business opportunities for just US$ 14.9/-? Do you want to know how to become rich and Warren Buffet principles for financial success without stock market? Please cut and paste the following link to your browser : http://www.amazon.com/Stay-Employed-stop-fear-recession/dp/1451509936#
No comments:
Post a Comment