2011 Mid-Year Outlook
Our leading investment professionals deliver a market-by-market synopsis of the emerging markets in 2011. The year has brought some excitement, some disappointment, and even a few surprises so far. We highlight some of the important aspects which investors should be watching in the rest of the year.Executive Summary
- The macroeconomic outlook for the emerging markets should be more visible in the second half of this year, although economic growth rates in the region may be somewhat lower. In our view, inflationary pressures in the emerging markets are diminishing as food and crude oil prices stabilize and the effects of monetary tightening, which largely began in the second half of 2010, begin to have an impact.
- Efforts to avoid a Greek default and possible contagion to other peripheral European countries are likely to continue through the second half, which will likely add volatility to the emerging equity markets.
- The end of the second round of quantitative easing (QE2) in the United States is not necessarily a negative for emerging market equities because the markets have likely priced in this event, and we believe the Federal Reserve will continue to maintain a loose monetary policy.
- Money flow to emerging markets may resume in the second half for several reasons, namely the outflow from the region in the first half – the first since 2008 – diminishing inflationary concerns, attractive valuations and healthy earnings growth in the region.
- Swings in investors' risk appetite due to sovereign risk in Europe, a continued slump in the US housing market, and latent political instability in the Middle East may continue, despite the healthy fundamentals of emerging market economies.