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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

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."

Advertisement
Advertisement - Article continues below

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.

Advertisement

Recommended

Visit/investments/stockmarkets/600688/bullish-investors-return-to-emerging-markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Visit/519872/beware-the-hidden-risks-when-investing-in-emerging-markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
Visit/517395/emerging-markets-buy-when-the-news-is-bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019
Visit/514936/emerging-markets-bounce-back-after-a-miserable-few-months
Features

Emerging markets bounce back after a miserable few months

Investors in emerging markets have been enjoying some long-awaited relief after a miserable few months.
13 Sep 2019

Most Popular

Visit/investments/stockmarkets/600909/will-coronavirus-kill-off-the-bull-market
Stockmarkets

Will coronavirus kill off the bull market?

It seems clear now the coronavirus will at some point go global. And when it does, will it bring down the stockmarket’s bull market? John Stepek looks…
27 Feb 2020
Visit/investments/commodities/gold/600887/gold-price-coronavirus-cost-of-face-masks
Gold

Gold, coronavirus, and the high cost of face masks in northern Italy

The price of gold is spiking – as it always does in a global panic. But this bull market predates the coronavirus epidemic, says Dominic Frisby, and w…
26 Feb 2020
Visit/personal-finance/pensions/pension-tax/600877/why-it-makes-sense-to-scrap-higher-rate-pensions-tax
Pension tax

Why it makes sense to scrap higher-rate pensions tax relief

The point of pensions tax relief is to keep you out of the means-tested benefits system. The current system is ridiculously generous, says Merryn Some…
24 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019