Norris says the strength of emerging markets in the past decade has been largely due to a weak dollar, which has led to developed markets having a decade of cheap money, which cannot continue.
He says: “There is a strong inverse correlation between the dollar and emerging market economies, with the euro/dollar exchange rate almost doubling from its low. It is an incredible boost for emerging markets and I do not see that continuing.”
Norris says once that turns, it will highlight problems in emerging market economies. He points to China as a prime example of those concerns.
He says: “People talk about US money supply and loan growth problems but China’s money supply has grown by 25 per cent year on year while loan growth has risen by 30 per cent in 2009 compared with 2008.
“You cannot have that expansion without bad loan and bad debt problems for banks and the story of the next five years will be in the banks in China. There will be a ripple effect as China sits at the epicentre of emerging markets.”