Are the emerging market dominoes really set to topple?

A leading analyst predicts big trouble ahead for emerging markets in Asia, says Merryn Somerset Webb.

I am always grateful to Albert Edwards at Socit Gnrale. Sometimes I worry that at Moneyweek we are prone to focusing too much on the downside of events. But then I read his work and realise that we really don't.

We have long been in full agreement with him on the "idiocy" of the idea that investing in emerging markets would produce superior returns to developed markets but with less risk (see many Moneyweek cover stories past) and we've also worried about a new balance of payments crisis in the emerging markets.

But, while we are beginning to see value in some emerging markets(see last week's magazine for much, much more on this) despite the endless economic problems there, he isn't.

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Subscribers can read about the many and varied problems of the emerging markets in last week's magazine.But Edwards points out that it isn't about just a few countries "who have allowed their current account deficits to get out of hand." It's about "the beginning of a process where the most wobbly domino falls and topples the whole precarious rotten risk loving edifice that our policymakers have built."

The turbulence in the east is likely to lead to a "renewed global recession" with "waves of deflation" heading west as China is finally forced to devalue its currency in the face of "an unrelenting loss of competitiveness" (thanks to the falls in the currencies of all its competitors) and a need to prevent economic collapse.

Renminbi devaluation will terrify the markets, says Edwards. "This is one domino it will not pay to be resting under as it comes crashing to the ground."

See what I mean? You might think Moneyweek has a tendency to pessimism, but Edwards manages to make our current emerging market view - that much of the pain is already in the price - seem relentlessly optimistic.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.