View more on these topics

Emerging concerns

In terms of growth potential, Western economies have been outpaced easily in recent years by countries such as Brazil, Russia, India and China. In these emerging markets, low wages and the ample supply of labour have attracted production and service activities from abroad. Strong global demand for often essential commodities from these emerging markets has fuelled their economies even more.

The benefits of this globalisation are often twofold. In emerging markets, jobs are created and domestic demand gets a lift, boosting trade and economic growth. It also helps those US and European companies which are exporting jobs to keep their margins stable.

China is a prime example. Greater trade liberalisation has enabled its economy to shift into a higher gear. Since 1995, 15 to 20 million jobs have been created every year. The almost insatiable Chinese demand for raw materials also benefits many emerging economies. The Chinese economy is expected to continue to grow by 10 per cent a year.

Since September 1998, emerging equity markets have outperformed developed markets by 12 percentage points on average. Major contributory factors are the ample money supply, falling or low interest rates, strong demand from China and attractive valuations.

Financially, the emerging economies of Asia, Latin America, Central and Eastern Europe are in better shape these days. Many countries boast healthier public finances and high trade surpluses and, through a strong demand for their exports and cheap labour, have been able to accumulate big foreign currency reserves. But strong demand for their exports is also their Achilles’ heel. If investors start to worry about weakening economic growth in the Western world, this may affect emerging markets’ exports, which would hit them hard. If these worries cause steep interest rate hikes, which choke off economic growth, emerging markets will also take a beating. This is what happened in May and June last year.

Since then, shares in emerging markets have rebounded to some extent. It is important to stay alert as long as there are doubts about how far the US economy will fall. The OECD leading indicators, having peaked early last year, have been falling in the last five months – a sign of moderating economic growth. How much further will this downswing go?

A sharp deceleration in US growth remains a risk to our otherwise positive outlook for emerging markets but the Federal Reserve is unlikely to let this happen and we expect it to start cutting interest rates in reaction to weak data. We have increased our neutral stance on emerging markets to an overweight position.

Astrid Smit heads ABN Amro Asset Management’s investment strategy team in Amsterdam.


IFA shows value of advice with 50k boost

The Axa Avenue experiment has proved the value of financial advice, with IFA Saran Allot-Davey saving 10 families 50,000 over the course of a year.Heron House Financial Management managing director Allot-Davey took part in the social experiment which was sponsored by Axa and she was able to reduce the debt of 10 families by 23 […]

Plain English guide to Isas

T Bailey Asset Management has published a plain English guide on the recent changes to the Isa regime for investors. Advisers can obtain free bulk copies from the multi-manager specialist to send to their clients by calling 08451300005.

Interest rates increased to 5.25 per cent

The Bank of England has increased interest rates to 5.25 per cent.The surprise quarter point rise comes after the November increase from 4.75 per cent.Alliance & Leicester head of intermediary mortgages Mehrdad Yousefi says: “A rate rise to 5.25 per cent at the start of the year has caught the market by surprise, particularly following […]

272M in Standard shares unclaimed

Over 235,000 Standard Life policyholders have yet to claim a total of almost 90 million shares following the company’s flotation.At the closing price of 306p on January 2, these shares were worth 272m.Standard Life is urging policyholders to come forward to claim their shares.The shares are being held in the firm’s unclaimed asset trust and […]

Japan: mid-year review and outlook

By Chris Taylor, Manager of the Neptune Japan Opportunities Fund H1 2014 Economy: after a harsh winter that slowed activity in the economy, the main event of the first half of the year has been the debate over what impact the 1 April VAT hike from five to eight per cent would have; we are […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm