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Emerging Markets to Weather Europe Crisis: HSBC


Emerging markets are well placed to weather the storm of the sovereign debt crisis currently engulfing the euro zone, and emerging economies are expected to grow by 5.3 percent this year and 6.1 percent in 2013, Pablo Goldberg, global head of Emerging Markets Research at HSBC, wrote in a report.


As developed economies falter, Goldberg expects emerging economies to continue to strengthen, and with developed economies predicted to grow by just 0.6 percent this year, he claimed growth differentials between emerging and developed economies could peak in 2012.

China Leads the Pack

Predictably, China figures large in the success story of emerging markets, and in his report "Waiting for Calmer Waters, " Goldberg claims the Chinese will grow by 8.6 percent this year. In an interview with CNBC, Goldberg said he has "no fears of a hard landing for China" despite its largest export market, the EU, experiencing severe financial difficulties.

He added that the best thing for Europe would be a transition from China being the so-called "factory of the world" to a major consumer of Western-produced goods.

"There's a risk for China in the sense that China has to slow down later… at some point China will not be able to keep growing at the rates it has been growing, but having said that we actually want China to transform from the factory of the world to the market of the world," Goldberg explained.

Emerging markets are also better placed to "bounce back" from economic turbulence due to policymakers' ability to implement countercyclical economic policies, which individual nations within the euro zone are unable to do, Goldberg said.

Chinese Growth to Ease

Pointing to China, Goldberg stressed that while Chinese growth will ease in coming years, the Chinese administration will adopt policies that allow the country to cope with the consequences of such fast expansion.

"In the case of China, we're pretty confident that if problems have built up in this very, very quick expansion, they can take care of (them) without too much of a problem," he said.

"We expect the Chinese economy to continue to fire on all cylinders," he said. "We have already seen the easing in policies in terms of cuts to requirement ratios (and) we might see interest rate cuts later this year."

Despite strong economic growth in emerging markets, equity markets have tended to underperform compared with those in Europe, Japan and the United States, but Goldberg believes the coming year will see significant improvements in the performance of emerging market stocks.

"I think this is a process that has already started. We're starting to see emerging market equities outperforming developed market equities so far this year," he said.

Goldberg said his preferred markets were based in countries with resilient economies, such as China, Brazil and Russia.

"We like China, which is the fastest growing economy, but also we like Brazil, we like Russia…We basically like countries that have the ability to bounce back, and that has a lot to do with being able to ease policies, to put together counter-cyclical measures to boost economic growth, " he told CNBC.

In his HSBC report "Waiting for Calmer Waters," Goldberg predicts that Brazil will cut interest rates to 9 percent by the middle of 2012, China will avoid a hard landing, and the Russian economy will grow by 3 percent.

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