As bad as developing markets and their exchange traded funds (ETFs) have been hit in the global recession, emerging market economies have had it that much worse. Are their glory days over?
Not Necessarily. The main factor that will determine how the emerging economies will cope with the global recession rests with if they will be able to become good savers, and are able to stimulate their own economies, or if they will become borrowers, reports The Economist.
Looking Abroad. International investors are also able to help stimulate these markets if they do not shy away from risk and the developed world governments. Right now, investors are skittish, which is making it a challenge for governments in emerging countries to issue bonds and for banks to roll over their debts.
The Good News. Although some countries will be able to rebound quicker than others, overall, the long-term prospects are good. The latest structural reforms and updated macroeconomic policies over the past decade will help insure that emerging economies can cope with the general economic malaise that is common right now.
The Verdict. For sure, emerging economies will not return to their exceptional growth rates in 2007, however, the numbers represent overheating economies. The Economist points out that their dependence on the United States is exaggerated. While U.S. demand fueled export growth, emerging market exports to developing countries overall has barely budged. It’s apparently faulty to assume that these economies can’t begin to grow again until we do.
- iShares MSCI Emerging Markets (EEM) down 4.6% year-to-date; down 1.6% in the last three months
For full disclosure, some of Tom Lydon’s clients own shares of EEM.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.