Accounting, Business, Business News - Tuesday, May 20, 2008 11:50 - 0 Comments

HSBC says emerging markets now leading the world

Emerging markets have reached critical mass to overtake the United States and European Union as the world’s largest economic zone, HSBC said on Monday, saying their growth could avert global recession.

The bank said in a research note emerging markets had contributed more than 50 percent of global nominal growth in dollar terms over the last three years and were likely to represent even more as growth slowed in richer countries.

While it would be premature to assume that emerging markets will be entirely immune from a U.S. recession, the economic and earnings environment in emerging markets is likely to remain favourable, especially relative to the prevailing conditions in the developed world," said HSBC Investments global head of emerging markets business Christian Deseglise.

 Emerging equities .MSCIEF were pummelled in the first quarter of this year by risk aversion stemming from the credit crunch and worries of a Western recession — but have outperformed developed equities in recent weeks to demolish the year’s losses and hit new 2008 highs on Monday.

 HSBC said emerging markets again offered good value although volatility was likely to remain high.

 Good domestic consumption and investment spending in emerging markets remained buoyant despite economic troubles in the United States, on which many emerging economies were becoming progressively less dependent.

It said exports to the United States accounted for only two percent of India, Brazil and Russia’s gross domestic product at the end of 2007.

 "While still smaller than that of the U.S., the consumer markets in emerging markets are growing so fast that they now represent the bulk of global consumption growth," HSBC’s research note said.

 "Consumer spending rose almost 3 times as fast as in the developed world in 2007, reaching 6.6 percent year-on-year growth, up from 4.1 percent in 2003."

 China — whose growth has powered commodity prices to new heights and which itself has helped power economies from Africa to Russia with demand for resources — now had a bigger impact on global consumption growth than the United States, it said.

 By December 2007, more than 15 percent of total emerging country exports were headed to China, it said.

 "The rise of new classes of consumers does not only benefit emerging economies, but also contributes to the revenue growth of large American and European firms offsetting disappointing results in developed markets," the note said.

 Automobile sales in Brazil, Russia, India and China were now equivalent to 88 percent the size of the U.S. market, it said — and were still growing at 20 percent a year compared to flat growth and recent decline in the U.S..

 "10 years from now, economic historians may characterise the current period as the first time in modern history a global recession will have been averted thanks to emerging markets," HSBC said.