Emerging markets considered for first recovery

[newsroom]

Emerging markets will recover from the global economic crisis before the developed world, though not all at the same time, Investec Asset Managment (IAM) said on Thursday.

"Asia, with high savings and low borrowings (both government and consumers) will emerge first," IAM's Jeremy Gardiner said in a statement. "Obviously, China is key here."

Latin America would be next. "Brazil will probably grow 1.5 percent this year, Mexico due to its reliance on the US will probably see a recession, and Argentina may default."

Gardiner said Europe was in bad shape due to in-fighting in the euro zone, banking problems and over-indebtedness.

"So, Asia, followed by commodity emerging markets, including South Africa, should bottom towards the end of 2009, with South Africa receiving an artificial, but perfectly timed and very welcome, boost in the form of the soccer World Cup."

Gardiner added that there seemed to be large concerns around what would happen to South Africa after 2010. By 2011 the developed world "should be in the throes" of some form of recovery, which would be positive for emerging markets, including South Africa.

Turning to the rand, Gardiner said it had been sold off heavily last year against most currencies as foreigners fled emerging markets for safety.

"We are the most liquid emerging market from both a currency and a bond perspective, which means that when foreigners want out, they sell us first.

"You can try and sell Icelandic or Polish bonds, but you may find there are no buyers on the other side," Gardiner said.

In addition, South Africa had a big current account deficit which also made it vulnerable.

He stressed that the rand had already recovered roughly half of last year's fourth quarter sell-off. Over the next 12 months the environment was "rand-positive".

"Demand for commodities will return, 2010 will be rand-positive, gold should have a decent year, and a resumption of risk appetite should also help the local currency."