Emerging markets turn into a pumpkin for investors

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WSJ

When the global economy took a massive hit in late 2008 it was the emerging markets, countries like India, China and Brazil, that picked up the slack for the older Western powers. These countries managed to maintain strong growth and attack plenty of attention from investment and development experts.

Nearly five years later the same countries are showing continued growth while the United States, UK, France and more trudge along. One would suspect that investors would look to the strong growth of emerging markets for financial gains.

Turns out the opposite is happening. As the US begins to get back in order money is rushing out of emerging markets, reports the Wall Street Journal.

“It feels like the party is ending,” said Howard Wong, managing director at Doric Capital Corp. in Hong Kong.

Facing the loss of foreign capital, central banks in these emerging markets have attempted to prop up their home currencies.

India recently took actions to prop up its falling currency and Turkey is now looking to gain investments after turning away money for the past four years. Problems are found elsewhere. The South African rand is down against the dollar, so is the Brazilian real.

Only a few months ago investments were streaming in. So what happened?

The Wall Street Journal reports that the decision by US Fed Charirman Bernanke to slow down bond buying and happenings in Japan are playing a role.MI-BW532_EMFLOW_G_20130611183304

However the answer may be simpler. The evidence is building that investing in emerging markets is not such a good idea. GDPs are rising quickly, but the growth for investors did not materialize.

Chinese data in recent days showed exports rose only 1% in May from the year earlier, the slowest pace in 10 months, weighed down by poor demand from customers in Europe. Brazil and India are both suffering from slowdowns that have confounded policy makers and taken the shine off what had been among the most promising big economies in the world.

The withdrawal of investments only stands to make matters worse, found the reporters. South Africa and India are vulnerable to continued slow growth and declining currencies at a time when more investments are needed.

Slower growth in China may be at fault to some extent. China is responsible for much of the growth in emerging markets by itself and through its investments in projects from Tanzania to Brazil.

“[China] has been an enormous source of demand for all the other emerging markets. I mean they’re building highways and pipelines in Brazil to get commodities from the remote parts of Brazil to the West Coast so that they can go to China. And China’s economy is now slowing, and the slower demand from China is hurting emerging markets all across the globe,” said WSJ economics editor David Wessel to NPR.

Will emerging markets remain a pumpkin?
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About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.