Next Up: Emerging Markets

In Washington this weekend, there seems to be remarkably little realization of the difficulties already facing emerging markets.  Even if things start to go much better in and for the G7 in the next 48 hours, you cannot easily get back to the situation before Iceland’s banks failed and effectively Iceland was left to its own devices.  And, of course, it is impossible to return to where we were before the series of unfortunate events surrounding Lehman and AIG.

But what exactly does this imply for various kinds of emerging markets?  Countries with clear pre-existing vulnerabilities were already in trouble last week, those with any kind of small cracks in their economic armour are now being tested, and even the apparently invulnerable may come under pressure.  According to our analysis, now published in Forbes.com, this will be a stress test like no other.

4 responses to “Next Up: Emerging Markets

  1. Is this ‘violent’ credit crisis likely to lead to a redistribution of wealth – from G7 to emerging economies?.

    One view-point, whether right or not only time will tell, is that we are in a transitory phase where wealth is being redistributed to different economic regions. IMF data shows increasing contribution to the world GDP and consumption from the ‘developing/emerging’ economies. In 1970s, only 25% of the world GDP came from developing countires, now the figure is being estimated at well over 50%. In the same 40-year period, the normalised world GDP shows that Eurozone has now taken over the US as the largest contributor to the world GDP.

    Brijen Hathi

  2. I think you may be right about the long-term trend, but I don’t think the short-term crisis will benefit emerging economies. One thing we are seeing is a flight to quality – meaning US Treasury bills – which is one reason the dollar appreciated while the stock market slid. Even after the G7 banking systems are working again, they will probably attract capital that otherwise would have gone to emerging markets. Perhaps there’s another dynamic at work that I’m missing.

  3. Within US GAAP and IFRS as well, period profit still is an opinion and next, and consequently, yield is also an opinion.
    In fact, effectiveness is lost as long as one cannot measure true period profit.

    People, companies, banks, they all THINK that they are gaining money, but they may be burning money, without knowing it …..

  4. Jan Jacobs is correct in saying: “People, companies, banks, they all THINK that they are gaining money, but they may be burning money, without knowing it …..”

    This is because gain/loss, measured over different timeframes, will inevitably yield different values. All companies report results annually, perhaps due to tax and shareholder commitments.

    ‘True profit/loss’ can only be measured correctly if we take from the start to winding down of a business.

    Update to my original comment (above): IMF forecasts show that out of BRIC countries, the GDP growth in ‘B’ (Brazil) and ‘R’ (Russia) is tailing off, while some growth is still around in the other two countries. The question, that will determine if the shift in wealth will take place or not, is: whether the growth is sufficient to sustain consumption in China and India.