Emerging Markets to Diverge

Terry Flanagan

Market participants predict a divergence of the emerging markets in Asia, Latin America and Africa from the U.S. and Europe markets.

“Emerging markets will de-couple from the U.S. and Europe, but the combination of lower growth in developed economies and moderately high commodity prices place emerging economies in a difficult position,” said Alberto Ades, co-head of global economics research and head of emerging markets fixed income strategy at Bank of America Merrill Lynch. “The growing global growth and malaise will mute export activity and temper demand for commodities, creating significant risks for emerging market investors in 2012.”

For the next several years, emerging markets, including the BRIC countries of Brazil, Russia, India and China, as well as the EMEA countries in eastern Europe, the middle east and Africa, will diverge from the path to be taken by the U.S. and Europe. GDP growth is expected to slow or even decline in the U.S. and Europe, while emerging economies will continue to see strong growth. However, because of this, inflation is also expected to have a substantial impact on the emerging markets, while slowing down in the established economies.

As the ongoing debt crisis in Europe continues to weigh down investor confidence, amid a backdrop of a still-struggling U.S. economy, BofAML warns investors that volatile times lay ahead. The bank also says that political uncertainty, high oil prices, slowing growth and low interest rates will continue to weigh down investor confidence and stifle investment returns in the U.S., Europe and even in emerging markets to an extent.

“Emerging markets have done very well all things considered,” said Ades. “However, we see it slowing down next year.”

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