As leaders chill in Davos, emerging economies going downhill fast
By Sujata Rao
DAVOS, Switzerland (Reuters) - More than a trillion dollars of investment flows has fled emerging markets over the past 18 months but the exodus may not even be halfway done, as once-booming economies appear trapped in a slow-bleeding cycle of weak growth and investment.
While developing economies are no stranger to financial crises, with several currency and debt cataclysms infecting all emerging markets in waves over recent decades, leaders gathering for this year's World Economic Forum in Davos in the Swiss Alps are fearful that this episode is much harder to shake off.
Seeded by fears of tighter U.S. credit and a rising U.S. dollar, and coming alongside a secular slowdown of China's economy and an implosion of the related commodity 'supercycle', there's growing anxiety that there will be no sharp rebound at the end of this downturn to reward investors who braved out the worst moments.
"The global backdrop and the drivers for emerging markets are very different from 2001," David Spegel, head of emerging markets at ICBC Standard Bank said, referring to the time Asia, Russia and Brazil were recovering from the crisis waves of the late-1990s.
"Back then all the stars were aligned for globalization and emerging markets benefited the most. This time around, we just don't have those multiple catalysts."
The chief catalyst in 2001 was of course China. Its entry to the World Trade Organisation unleashed a decade-long export and investment miracle that propelled its economy from sixth place globally, to the world's second biggest.
Its ascent hauled up much of the developing world, from Latin American exporters of soy and steel to the Asian workshops which became part of its gigantic factory supply chain. But its slowdown is whacking these countries equally hard.
Exports from emerging markets - from Korean cars to Chilean copper - are declining year-on-year at the sharpest rate since the 2008-09 crisis, according to UBS. Continued...