Businessworld - NEW YORK -- Emerging markets are likely to
lead global economic growth this year, with China’s economic slowdown
appearing to have bottomed, Columbia Management and Threadneedle said in
their 2013 International Outlook report on Monday.
Boston-based Columbia Management, with $340
billion in assets under management, said approximately 70% of the
world’s incremental global growth is coming from emerging markets --
even with the big markets of China and Brazil slowing down materially.
While growth rate levels may not return to emerging markets to what it
was during the last decade, it will be of higher quality derived from a
consumption-led growth driven by a strong sustainable middle class
rather than by fixed asset investment.
It said Chinese market data shows signs of the economic slowdown having
bottomed, which is a clear plus for equity markets and risk assets
generally. Industrial production, retail sales and fixed income
investments among other data showed an uptick since September of last
year.
“The easing of tail risks in Europe and China leads us to be more
positive on equities than we have been for some time,” Columbia
Management said.
“We expect the strong to continue to get stronger in the equity space
and M&A activity to remain an important driver in a number of
markets as companies put their excess cash to work.”
Although Columbia Management’s long-term view on Japan remains bearish
there is a chance that Japanese equities will perform well this year,
the report said. But an aging population and a shrinking workforce, a
massive government debt problem and signs that the Bank of Japan will
not stick with the reflationary policy, could likely hurt any returns
from the island.
in 2013, Asian economic growth will depend on exports, the report said.
The cost advantage in manufacturing that initially took developed
companies overseas is still in place, but now in different countries and
in different industries.
Overall demographics in emerging markets are much healthier, the it
said, which will continue to act as tailwind over time. Demographic
“winners” include Indonesia, the Philippines, Turkey and Brazil and
India, while demographic “losers” include Russia and China.
Young populations with lack of social mobility due to poor education
levels and structural unemployment are often a recipe for social unrest
such as in parts of the Middle East and South Africa, Columbia
Management said.
In China, it expects to see more progress in areas including banking
sector regulation, exchange rate policy, the development of domestic
bond markets and new initiatives to push consumption demand further as a
sustainable source of growth.
Investors’ main concern is that China is becoming less competitive,
particularly on the low end of the value chain as well as the
deterioration in the return on invested capital and earnings of the
listed companies.
Markets such as the Philippines, Thailand, Turkey and Mexico have
continued to post very strong returns supported by very strong
fundamentals.
Expectations for emerging market equities are low, but with the help of
accommodative monetary policy, growth seems to have stabilized.
Asian fixed income, which has grown sizeable enough in terms of market
capitalization, geographic and industries coverage, is now a distinctive
choice of an investment asset class for global investors, the report
said.
In Europe, some of the periphery countries such as Spain and Ireland
appear to be making the necessary structural adjustments, the report
said. Greece, through a series of measures has made progress on
refinancing itself, “but we are not comfortable they are really dealing
with the structural issues.” -- Reuters
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