Fear of ‘Lehman Moment’ Curbing Emerging Market Enthusiasm
Assistant News Editor, CNBC.com
The unresolved euro zone crisis, slowing growth prospects and currency depreciations have created a risk-off environment that makes investors think twice about emerging markets, Pablo Goldberg, Global Head of Emerging Markets Research at HSBC told CNBC’s “Squawk Box Europe”.
“We’re [seeing that] investors are revising their outlook for growth for these big economies. It’s not only about Brazil, it’s not only about India but also in China. Investors are thinking it [the growth rate] over,” he said.
The global economic crisis has been taking its toll on emerging markets with currencies declining on weaker growth prospects. India, a member of the BRIC bloc which also comprises Brazil, Russia and China, announced a series of measures on Monday to increase and retain foreign capital flows in the country and its central bank has said it will take further action to stop the slide of the rupee.
Goldberg told CNBC that some countries, such as Brazil and India, were experiencing “structural problems from growing” and that the country needed to work on reforms.
“India is one of the countries that needs to work a little bit harder in terms of structural reform to make the market more competitive and to reduce some of the bottlenecks that are leading to price increases and…deficits," he said.
He said that whether measures such as those announced by the country on Monday would work and keep investors enthused was yet to be seen.
“These measures are trying to address the lack of supply of dollars in the country. Now we’re going to see whether investors get excited about coming to these local markets like the authorities would like.”
Goldberg added that the lack of initial enthusiasm shown by the markets after India’s policy announcement was due to immediate fears of a return to the worst of 2008 and another “Lehman moment” occurring in Europe.
“I think we need to get some of the fears of a return of the worst of 2008 out of the immediate horizon — and that has a lot to do with Europe and the summit that is coming and what is going to follow through after that. As long as we don’t move out of this current risk-off environment — this sense that we could go to another Lehman moment — it’s going to be tough to get investors excited about putting too much risk to play," he said.
He added that investor concerns over the rule of law and corruption in emerging markets was another part of the structural reforms that were needed.
“Improvement in the rule of law in emerging markets in general is something that we need to continue to see. Some of these emerging markets are a little bit behind where we’d like for foreign investors to feel more confident to come in," Goldberg said.
“But sometimes that gets compensated with a little cheaper valuations” he said.