Liam Halligan

Speakers Corner: Are you optimistic or pessimistic about the economic prospects?

Liam Halligan: I guess it depends which end of the telescope you are looking through. In 1998, a systemic financial crisis in the emerging markets caused “contagion” in the West. Just ten years on, the same process has happened, but entirely in reverse. A crisis made in the West has now “infected” the entire global economy. That’s a symbol of how much the world has changed. The G7 countries between them now have less than 20% of the world’s currency reserves – and less than 6% if you exclude Japan. The BRIC economies – Brazil, Russia, India and China – have 40%. Again, that shows the extent to which economic power has shifted. It’s almost a cliché, now, to say the future belongs to the emerging markets. Actually, I’m not sure it’s entirely true. While many of the Western economies have deep-rooted economic problems – not least massive indebtedness, related demographic pressures and diminishing skills – those countries that adapt well, and approach globalisation in the correct manner, will remain well-off societies – with low, but reasonably steady, economic growth. Having said that, more and more, emerging markets will come to the fore. During 2007, the EM world accounted for half of global growth. By 2009, with the West on its knees, they accounted for practically all of global growth, remaining the world's economic locomotive in 2010 as well. It won’t be long before the “new new world” accounts for half of overall global GDP – as the emerging giants of the east continue to drive forward the fastest industrial revolution the world has ever seen. The credit crunch has taken its toll on these economies, of course. But the relative growth rate of the strongest emerging markets rose sharply in both 2009 and 2010. Western portfolio investors currently have less than 15% of their assets in EM countries – a proportion that will steadily increase over the coming decade, as the economies of these countries out-perform, even if their nascent asset markets remain quite volatile. These inevitable, historic trends – the decline of the Western hegemony, the rise of alternative centres of economic and commercial power and the eventual toppling of the United States from its position as the world’s biggest economy – were already playing-out quite fast. But this sub-prime crisis, in my view, has speeded-up this process even more. As a Westerner, I’m somewhat alarmed at the pace of our relative decline, the fact many Americans and Europeans will have to endure falling living standards – and the inevitable political fall-out that will bring. But as an investor, it seems to me that emerging markets are where the action is – and where the bulk of one’s capital should be. That’s still not a mainstream view. But I predict it soon will be.