Emerging markets

Do they have the potential to lead the recovery when the world economy begins to stabilise?

The term emerging markets appeared first during the 1990’s and is now widely used to describe countries not considered to be developed. Third World, lesser developed countries or under-developed countries. Developed meaning essentially the major European countries plus USA, Canada, Japan, Australia and New Zealand.

In recent months emerging stock markets have reached levels last seen before the collapse of the Lehman Brothers investment bank. The ongoing rally has been due to a returning belief in ‘decoupling’, the theory by which emerging markets will in future be less dependent on the fortunes of developed markets because they will be able to rely on stronger domestic demand.

Asia and Latin America haven’t had the recent fundamental problems in the banking sector that the developed world has had, so lending and credit growth have resumed rapidly and this is helping drive growth.

Emerging markets, particularly China, have seen strong demand for recent initial public offerings, many of which have raced higher in the style of the dotcom boom, raising fears that another bubble could be forming. Emerging markets have had a stormy and volatile past, rallying and slumping far more violently than the developed world.

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