Printer Friendly
The Free Library
14,504,174 articles and books
Member login
User name  
Password 
 
Join us Forgot password?

Emerging markets. Will the party run out of punch?


The emerging markets have been enjoying a powerful mix of accelerating world economic growth, high oil and commodity prices, a weak dollar, and extremely low US interest rates. Monetary policies in the industrialized in·dus·tri·al·ize  
v. in·dus·tri·al·ized, in·dus·tri·al·iz·ing, in·dus·tri·al·iz·es

v.tr.
1. To develop industry in (a country or society, for example).

2.
 countries remain unusually accommodative despite real global GDP GDP (guanosine diphosphate): see guanine.  growth in 2004 that we expect to be the second highest of the past ten years. Emerging markets are facing two critical issues, however--rich valuations and the Fed's "exit strategy" from 1% interest rates. Since skepticism lingers about the sustainability of the world recovery, the Fed seems to be the biggest concern, as investors fear that the party can only last until Alan Greenspan Alan Greenspan

Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body.
 takes away the punch bowl. We beg to differ.

[ILLUSTRATION OMITTED]

It's all about growth. The investment case for emerging markets hinges on economic growth and on institutional and political convergence with developed markets. We see much evidence of convergence: China's and India's increased involvement in world trade for goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. , successful political transitions in Brazil and Turkey, Russia's fiscal consolidation, and the emerging world's growing reliance on flexible exchange rates and decreasing dependence on capital inflows.

Growth is the necessary condition for these transformations to be sustainable, and we expect global GDP to surprise on the upside. Despite the efforts of the Chinese authorities to slow the economy, we estimate that developing and transition economies will grow faster than the advanced countries in 2004 by 2.5 and 1.5 percentage points, respectively. Economic performance across regions should also exhibit a lower variance than in 2003, thanks in particular to a recovery in Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. .

Granted, emerging markets face risks. Valuations are already above historical norms in certain emerging credit and equity markets. Asian growth could ultimately boost prices of intermediate goods and global inflation above the low expectations priced into the bond markets. Even in a scenario of still-moderate but rising inflation, US bond yields will probably go up over the course of this year. When the liquidity tide turns, sovereign emerging market debt issuers will have a harder time persuading investors to accept historically low yields. Moreover, unforeseen sources of financial instability may arise, and political improvements could be reversed.

[ILLUSTRATION OMITTED]

However, emerging markets are closer to fulfilling their secular growth promise than at any time since the early 1990s, largely as a result of Asia's economic ascendancy as·cen·dan·cy also as·cen·den·cy  
n.
Superiority or decisive advantage; domination: "Germany only awaits trade revival to gain an immense mercantile ascendancy" Winston S. Churchill.
. We expect them to overcome the transition in G-3 monetary policies likely in late 2004 and, more significantly, in 2005. Given our views on global growth and its drivers, we favor markets that are primarily driven by growth, oil, and commodities as opposed to liquidity and/or political factors.

[ILLUSTRATION OMITTED]

This is an edited excerpt ex·cerpt  
n.
A passage or segment taken from a longer work, such as a literary or musical composition, a document, or a film.

tr.v. ex·cerpt·ed, ex·cerpt·ing, ex·cerpts
1.
 from "Emerging Markets: How Sweet is the 'Sweet Spot'?" by Riccardo Barbieri Hermitte, dated February 6, 2004, published in EMEA (Europe, Middle East, Africa) Refers to that region of the world. For example, one might see products packaged differently for the UK, EMEA and Asia Pacific markets.  This Week. For a copy of the full article, including important information and disclosures regarding Morgan Stanley To comply with Wikipedia's , the introduction of this article needs a complete rewrite. , please see www.morganstanley.com/ourviews or contact 1-800-962-1343. This article does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. It was based on public information, and Morgan Stanley makes no representation that it is accurate or complete. Estimates of future performance are based on assumptions that may not be realized. Investments and services are offered through Morgan Stanley & Co. Incorporated, member SIPC (Simply Interactive PC) An earlier umbrella term from Microsoft and Intel for a PC that works like a home appliance. For example, it has a sealed case, uses external connectors for expansion and boots in just a couple of seconds. . Morgan Stanley and One Client At A Time are service marks of Morgan Stanley. [c] 2004 Morgan Stanley.

Riccardo Barbieri Hermitte, Emerging Markets Economist
COPYRIGHT 2004 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2004, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

 Reader Opinion

Title:

Comment:



 

Article Details
Printer friendly Cite/link Email Feedback
Author:Hermitte, Riccardo Barbieri
Publication:Financial Executive
Geographic Code:1USA
Date:Jun 1, 2004
Words:584
Previous Article:Darren R. Jackson.(BalanceSheet)(Biography)
Next Article:Shifting sands: the changing relationship between financial executives and auditors.
Topics:



Related Articles
Rums with punch; great rum punch recipes for summer entertaining. (includes recipes)
SPEARS' GRIT LEADS COWBOYS TO GLORY.(NEWS)
CHADS GO WAY OF DINOSAUR.(News)
RECALL SIGNATURES DUE TODAY ELECTION COULD BE SEPTEMBER, OCTOBER.(News)
MARCH VOTE WORSE COUNTY REGISTRAR WARNS AGAINST COMBINING RECALL, PRESIDENTIAL PRIMARY.(News)
EDITORIAL TWISTING THE FACTS RECALL RULING MIGHT `DISENFRANCHISE' EVEN MORE VOTERS.(Editorial)(Editorial)
Republicans are crude, insensitive, and intolerant? They're not the ones making fun of the handicapped for political gain.(political campaign of...
Counting Votes: Lessons from the 2000 Presidential Election in Florida.(Book Review)
USC NOTEBOOK: MAUALUGA ARRESTED FOR OFF-CAMPUS INCIDENT.(Sports)
BRIEFLY.(Sports)

Terms of use | Copyright © 2009 Farlex, Inc. | Feedback | For webmasters | Submit articles