Monday 10 September 2018

Emerging Markets on the edge, again

the modern world is so interlinked via financial globalisation. The economies of the world, whilst they have their own rhythm to some extent, after often treated as pawns by the veracity of the global markets.

Some Countries are undoubtedly victims of their own political issues - see Erdogan in Turkey or Putin in Russia, even the South Africans have been busily running their own economy to achieve domestic political ends. (And in Developed markets, the UK too...)

However, just as many are buffeted by the markets. Egypt and India stand out here. Egypt because as a geography and demographic entity it is a nightmare. An arab country with no oil, but also not enough food or water for its fast growing population. Indeed, Egypt must for these reasons alone be one of the most unstable countries in the world as it matters little what its politicians do faced with such a dismal situation.

In India, they have had a strong, reforming government for a number of years and indeed, though no China, things have been going well for India. However, India also has no oil, so the companies there which import are suffering from huge increases in import costs and the rupee has fallen to all time lows against the dollar. Of course, India exports a lot and receives plenty of foreign currency so its stock market and its bit exporting businesses are doing very well - but the economy as a whole still ends up on a knife-edge. Adding to its complex situation, the US is demanding India comply with new oil sanctions on Iran - but India imports a million barrels a day of crude from Iran at huge discounts to market and this helps it to limit the level of oil price inflation entering its economy.

Finally, we have not even mentioned Argentina, itself in another IMF rescue but with a huge government deficit, weak currency and 30% inflation - so trapped is Argentina by its poor performance that even many economists have given up trying to find a way out for the Country.

Collectively, these countries account for a big share of Global GDP - yet all are in crisis somehow even whilst Trump engineers a boom in the US and the EU slowly recovers from the financial crisis and Global growth is strong. Emerging Markets are always at risk of currency flight back to the West and this seems to be happening again with China trying in a limited way only to interfere when it spots resources to be bought on the cheap (hence of these countries, only Russia really appeals).

Will the crisis spill over - it does not seem so at the moment as the causes of the distress are a benefit to the main markets, but politically there are big risks especially in Turkey and Egypt - as well as Russia of course but there at least the Government is safe and there is no foreign debt to worry about.


Anonymous said...

Egypt's biggest problem is its low level of literacy. And even if literacy improves, the global market doesn't speak or read Arabic.

A general problem for emerging economies is that the kinds of products a growing economy could make and export, such as toys or kitchen equipment, are already being made by the Chinese. It's difficult to catch up when the places are already taken.

Don Cox

Unknown said...

I think you are looking for the trigger of the next big crash

My guess is that Russia does something irresponsible
(for they have form there).
The US decides to chop them out of the USD and Swift
(congress making it clear they are not russian stooges).
Russia defaults - no-one cares much
(this is not the 90s).
Russia decides that the US / EU are conducting economic warfare and so tries to fsck the banking system in retaliation.
(They partially succeed).

Stock markets collapse, but, the goods keep on flowing and the chinese see this as a worldwide buying opportunity.

Trump decides the russians cannot be trusted but the chinese can...

Wildgoose said...

Egypt's problem is of its own making. It had a golden opportunity to modernise its economy by forging strong links with the newly created state of Israel, a neighbouring country that also doesn't have any oil but which does have a highly educated technical workforce.

Instead, in common with nearly all the Arab countries, it forcibly expelled its Jewish population, seizing their assets and repeatedly attempted a genocidal war of aggression against their country of refuge. (I can't help but consider the similarities with the French persecution of their Huguenot citizens).

Not exactly a successful strategy, but at least they've given up on the warfare (for now).

What would the Middle East look like today if they had instead sought strong non-hostile trading links with Israel and used Israeli know-how to boost the level of their economy before (as you point out) the option to do so migrated to the Far East and was lost to them.

Anonymous said...

Don't think you need Russians to fcuk the system. Just give Trump 4 more years.

andrew said...

I think the donald is in the process of finding out how much less power the president acting alone has than he thought.

How is that drainey swampy thing going for him so far?

Anonymous said...


Interesting idea but AFAIK it was tried before - the other way around.

It took divine intervention of biblical proportions to sort it. Understand there were complaints from Red Sea ferry companies about the numbers that avoided paying.

If you want to see "tech" in action in this area check what the Saudis are doing with agritech in Sudan.

Thud said...

anon, did you sneak in here from the guardian or huffpost?