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Credit Suisse: Slower Growth in Emerging Markets Due to Sign of Maturity

Head of Equities & Investments at Credit Suisse suggests emerging markets still have a role to play in your portfolio

In a recent article in The Austrian Eric Varvel, Head of Equities & Investments at Credit Suisse says developing countries face growth rates slower as percentages but larger in absolute terms and still faster than in the developed world.

Making a case for optimism regarding the prospects of some of the larger developing countries, Mr Varvel said…

While emerging market growth in the next few years may be more measured than the rapid rates of the past decade, an ongoing shift to consumer economies, stronger and deeper local financial markets and a higher standard of professionalism give planners a sturdier base from which to build growth and react to economic challenges.

The rate of slowdown of a prosperous developing country is more due to mathematical factors, rather than an underlying fundamental one.

A country growing at 10 per cent doubles in size within about seven years, so if it then grows at 7.5 per cent, this lower percentage must be applied to a much bigger economy and its absolute scale of growth is markedly larger than it was before. China is experiencing this transition, which is more a sign of maturity than weakness.

Mr Varvel also noted the strength of lending in a countries native currency… Local banks are financing expansion in local currencies, thus matching revenues and liability. Previously, the heavy reliance on US dollar financing created revenue and liability mismatches that wiped out equity when local currencies tanked.

To read the source article, click here…