Comment: Emerging markets and life after the global storm

Investors began the year taking a wait and see approach to the markets and kept their fingers crossed that the March lows were just that. 

But investors began moving again, and when they did, they poured into emerging markets. As Caroline Allen reports this month, the GDP growth gap between emerging and developed countries is at 5%, up from 3% in 1982. In other words, emerging economies are growing at a faster clip than their developed counterparts, and may be in the maiden position to lead global growth going forward. (See related article here)

These markets have turned the idea of risk on its head, with many of them coming out of the crisis stronger than the developed countries meant to provide a safety net for institutional investors.

As strong as they may be, institutional investors need to keep a close eye on the impact of the quantitative easing experiments in the Western world and China’s US$586bn stimulus package on emerging economies. 

These measures have helped fuel the surge of cash flowing into emerging economies, making them a prime candidate for the next asset bubble. Economists and portfolio managers fear money from outside investors will fuel property and commodity bubbles, and strengthen local currency. 

Add to that the fear of QE driving global inflationary pressures, and it appears the effects of quantitative easing will be the great unknown going into 2010.  

Raquel Pichardo-Allison, Deputy Editor