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South Africa: Emerging Markets to the World's Rescue

15 October 2008

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Johannesburg — IN A twist of fate, emerging markets are likely to lead the global market recovery that is expected to emerge from the huge financial packages western governments have unveiled to try and nip the market turmoil in the bud.

This is in sharp contrast to the large market falls of the late 1990s, when emerging markets, particularly the Asian Tigers , were the catalyst to the problem and took much longer to recover.

This time around, financial institutions in many emerging markets are less exposed to the contagion sparked by the US subprime crisis and in some cases, such as in S A , stock markets have not been as badly hit.

Also, although it will be tamer than previously forecast, growth from emerging markets is still likely to be positive. For example, China's central bank sees growth slowing to 9% next year from 10,4% this year and 11,9% last year.

While S A 's growth will be significantly lower than this, the economy is still expected to grow in the region of 3%-4% this year and 2,8%-3,5% next year. This is against the previously forecast rates of 5% plus, but the cumulative effect of interest rate increases has started to bite.

But, however far removed S A and some other emerging markets might be from the turmoil, there is no escaping the second-round effects of the global crash and the recession that some countries are expected to enter as a result.

Corporate profits and government revenue will come under pressure as export demand wanes and commodity prices weaken due to slowing global demand. Share prices on the JSE have fallen sharply, although not to the extent of the crashes in the US, Europe and Japan.

Similarly, the gains of the past couple of days have also been more muted.

The Bottom Line is edited by Edward West

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