Financial crisis will be different for emerging markets this time
The current global financial crisis is not likely to be as destructive to emerging markets as the Asian economic crisis of the 1990s, according to a report by Standard & Poor's Fund Services.
Wednesday, August 26th 2009, 7:17AM
S&P Fund Services analyst Leanne Fook said: "Investors have long been attracted to investing in emerging markets because of the inherent appeal of investing in some of the fastest growing economies in the world. This enthusiasm has been tempered, at times, by the realisation that emerging markets can be volatile and periodically afflicted by a major crisis that is very destructive to shareholders."
However, there are three important reasons why this crisis is likely to be materially different and less damaging to emerging markets than past crises.
"One of the lessons learned during the Asian crisis is that emerging economies need to have a material degree of independence from unpredictable international capital flows. Today, it is the emerging economies that are providing capital and savings to the developed world, particularly the US.
"The emergence of 'three billion new capitalists' means that a self-sustaining structural growth dynamic has been established in emerging economies. Increasingly, the substitute for the U.S. consumer looks likely to be internal demand or another emerging economy.
"Finally, this crisis, unlike others that have affected emerging markets, has its roots firmly in the developed world. That makes a world of difference," Fook said.
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