Within the last week, emerging markets have been shaken by one of the largest pullouts in recent years, estimated at over $7 billion. Political unrest in the Middle East and social instability caused by food and commodity price volatility are seen as the influential factors which triggered the pullout.
It is part of an overall adjustment to the crises we’ve witnessed in the past few years, the ripples of which still continue today and will continue so for some time. It’s important to look back and understand the causes, when the financial crisis of 2008 occurred, investors flocked to emerging markets to secure themselves from the instability, however now that stabilization is taking hold in the developed markets, investors are now turning to search for new opportunities that did not exist during the crisis, says George Haligua, CEO of Traders Group.
Another reason for investor worry are the three large emerging economies of Brazil, India and China all of which are experiencing record growth, but growth lacking control, one of the main reasons for increased inflation. Brazil is instituting strong measures to curb inflation, announcing a $30 billion cut in spending, both China and India’s central banks have taken precautionary measures by raising their interest rates, but these measures could very well not be sufficient. Where are the emerging markets heading?
If the central banks take severe actions to control inflation and growth in the emerging markets, the results will negatively impact the large international players involved within those markets. The past few years were great for investment in the emerging markets for the simple fact that they were growing faster than the developed markets. The current unstable social climate and increased inflation is causing investor confidence to wane and emerging markets are quickly losing their lustre, despite this one sector in particular will see continued earnings is the energy sector, regardless of these uncertainties, people will always buy energy even at high prices, says George Haligua.
After a substantial rise over the past years, all signs are pointing to a slowdown in the growth of emerging markets.