Emerging Markets: Stumble or Fall? Economist

Will the global financial crisis halt the rise of emerging economies?

NOBODY talks about “decoupling” any more. Instead, emerging economies are sinking alongside developed ones. In 2008 emerging stockmarkets fell by more than those in the rich world, and financial woes forced countries such as Hungary, Latvia and Pakistan to go cap in hand to the IMF. Taiwan’s exports have plunged by 42% over the past year, and South Korea’s by 17%; even China’s have shrunk. Singapore’s GDP fell by an annualised 12.5% in the fourth quarter of 2008, its biggest drop on record. Is this the end of the emerging-market boom?

Over the five years to 2007, emerging economies grew by an annual average of more than 7%. But in the past three months their total output may have fallen slightly, according to JPMorgan, as the fall in exports was exacerbated by a sudden drying up in trade finance. For 2008 as a whole, average growth in emerging economies was still above 6%, but recent private-sector forecasts suggest that this could slip to less than 4% this year. That is grim compared with the recent past, though still robust set against an expected 2% decline in the GDP of the G7 countries.

Short-term pain is only to be expected. But some economists argue that emerging markets’ longer-term prospects have been badly hurt by the global financial crisis. From Brazil to China, they claim, the boom was driven largely by exports to American consumers, easy access to cheap capital and high commodity prices. All three props have now collapsed. In particular, as America’s housing bust causes households to save more, they will import less over the coming years. This could reduce emerging economies’ future growth rates.

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Bond spreads hit record high: bworldonline

HONG KONG — Asian bond spreads widened to record levels yesterday as fears about a balance of payments crisis in Pakistan and Argentina’s takeover of its private pension system rocked confidence in broader emerging markets.

Fears about Asian companies also deepened after S&P and Moody’s downgraded ratings on Chinese conglomerate CITIC Pacific , which this week revealed a potential $2 billion loss on unauthorized currency trades.

"There’s a scare going on in emerging markets overall. Yesterday there were jitters about Pakistan, and right now, adding to the pressure is the news from Argentina," said a Manila-based bond trader.

The iTRAXX investment-grade index widened by by about 40 basis points (bps) to 380.

The equivalent high-yield index jumped some 100 bps to as high as 1,200.

Both marked new records levels, a Hong Kong-based trader said.

The steep widening comes amid concerns about the deteriorating health of emerging markets. Pakistan is feared to be in critical condition as the central bank holds barely enough foreign currency to cover six weeks of imports and was expected to seek IMF help.

Shaukat Tarin, economic adviser to the prime minister of Pakistan, told Dawn News on Tuesday that the country required up to $15 billion of support from foreign lenders to avert a crisis.

Also on Tuesday, news that Argentina will take over its $30 billion private pension system in order to guarantee payments to retirees sent the country’s stocks and bonds tumbling.

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