EMs ever stronger against shaky US Market
The Financial Times ‘Beyondbrics’ blog posted an article last week which gives further justification to my strong belief that investors need to look beyond New York and the US Dollar, to consider the benefits of engaging with EMs. Using comments made by Jan Dehn of the UK investment managers Ashmore, Michael Pooler paints a convincing picture of the buoyancy of EM economies given global market conditions.
Like me, Dehn considers it irrational that at a time when the US dollar is expected to be degraded, rather than look to EMs, businessmen are consolidating their investments in the ‘safer’, developed markets. He argues that contrary to popular opinion, EMs aren’t driven by quantitative easing; they don’t rely on “cheap money”; and rather than carrying high risk, they are in fact “incredibly boring”.
Dehn makes three key points. First, not only have investment-to-GDP in developing countries remained stable, but also the average debt-to-GDP ratios in EMs have not increased since quantitative easing was brought in 6 years ago. Second, “financial shallowing”, caused by an increase in bonds in circulation and the shrinking of EM fixed income markets, has resulted in faster growth in emerging, rather than debt, markets. Finally, the debt to income relation is at a quarter of the figure in 2000.
What should be more worrying, as Dehn highlights, is if EMs were to withdraw their investments in DMs. There are $9tn EM assets invested in DMs (mostly in the US Treasury), nine times the amount invested by DMs in EMs.
As Pooler says, “All pretty compelling stuff”.