China, Brazil, And Ems Won’t Save World Economy From Stagnation

The article mentions the strong financial ability of the emerging markets. Fontevecchia states that it is highly unlikely to see the emerging markets help the other struggling global markets. In the article Jonathan Anderson of UBS’ global macro team stated that the rest of the global markets are looking towards the stronger emerging markets for help however these markets are afraid that any assistance will put strain on their own economies. Anderson stated that real GDP of the large emerging markets expanded at more than 5 percent in 2011. China is expecting to have an increase in GDP of 8.2% and India’s GDP is expected to grow 7.5% to 8%. Emerging market’s central banks are not tightening policy rates. These emerging markets’ fiscal balances have improved since 2009 but are still not up to 2006-07 standards. Emerging markets have outperformed the G7 economies since the financial crisis. The improvement in the emerging markets has been seen in public companies’ foreign financial statements such as Caterpillar, Yum Brands, Starbucks, and Apple.

The emerging markets should not help the struggling economies and only focus on their own financial well being. I believe that financial crisis of the European Union is as severe because of the systemic risk caused by dire lending practices to help weaker economies. If emerging markets lend to weaker economies then this will put pressure on their own economies. It is better if these economies are left alone to grow. The weaker economies need to drastically fix their fiscal policy. I think American investors such as large institutional investors need to look towards emerging markets in tumultuous times to find pure growth. These same institutional investors should also look towards these weaker countries in the bond market to receive high-yield interest on government bonds however these bonds will come with some risk. These struggling countries cannot survive if they’re only plan is to wait for assistance from emerging countries. Countries that are struggling need to create revenue and increase capital and therefore change their current fiscal strategy.

Forbes Article: http://www.forbes.com/sites/afontevecchia/2012/02/22/dont-bank-on-china-brazil-and-the-em-gang-to-spark-global-growth/