Emerging Markets Outlook Bright in 2012

Original Article in MarketWatch

Matt Lasov, director of global research at Frontier Strategy Group, said the emerging markets’ performance in 2012 depends on their relationship to the euro zone.

“The euro zone is in a recession that is likely to get worse,” Lasov said. “We see a two in three chance that there is a breakup of the euro zone in 2012 — most likely Greece leaving.”

And “success for emerging markets will be determined by linkages to the euro zone,” he said.

“The clear outperformers in the short term are India, Indonesia, and Sub-Saharan Africa,” according to a research note from Frontier Strategy Group, referring to those markets as having “low linkage” to the euro zone. “These markets are characterized by rapidly growing domestic demand and diversifying economies that are creating middle class growth” and they have limited trade relationships with Europe.

The Middle East and Latin America are linked to Europe because of trading in commodities, the note said, referring to these markets as having “medium linkage” to the euro zone. “Reduced European demand for oil will impact state revenues, but most markets have more than enough reserves to weather a crisis.”

Russia, meanwhile, is “positioned to be the biggest underperformer,” the note said. “Oil exports to Europe are driving Russia GDP growth more than ever before,” and as oil prices fall below the $110 per barrel built into the Russian budget, “Russia will enter deficit.”

One thought on “Emerging Markets Outlook Bright in 2012

  1. Rachel Kasumba

    Matt, thanks for the analysis. In addition, other factors contributing to less effect of the Euro Zone crisis in emerging markets will be due to 1) increased regional integration and 2) South to South trading in these markets than previously. 3) Increased investment into these markets by multinationals and development partners from the West as economies there shrink.

    These and other factors will indeed cushion emerging markets at least in the foreseeable future leading to improved development.

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