After the financial market meltdown, I am a bit wary of anyone touting a boon story. However, as expected the liquidity and credit crunch in the developed market has led to an inflow of money into the emerging market sector, particularly, the Brazil, Russia, India, China (BRIC) sector -- leading to a rise in asset prices and outperformance of emerging market funds and EFTs.
IMF says European debt crisis a boon for emerging markets
WASHINGTON — Europe's debt crisis is sending investors flocking to the emerging markets of Brazil, China and India, the IMF said, as analysts asked if the crisis is changing the world economic order.
In a report on the state of the global economy, the International Monetary Fund said the debt crisis in Greece and other eurozone nations had caused investors to look to emerging nations for profit.
"The crisis has altered perceptions about risk and return in mature (markets) relative to emerging markets," the IMF report said.
The global crisis has undoubtedly laid bare the fragile state of government finances in swathes of once-safe Europe, prompting austere spending cuts and questions about the future of the euro itself.
The so-called PIIGS of Portugal, Italy, Ireland, Greece and Spain, have seen their public debt soar, leaving jittery investors to worry about previously unthinkable government defaults.
Greece has been worst hit. As efforts by eurozone members to create a safety net have spluttered, investors have demanded greater risk premiums to lend Greece fresh cash, deepening the debt crisis further.
According to the IMF the impact of that crisis in confidence is now being felt in the choices of everyone from the smallest individual investors to multi-billion-dollar funds.
"The favorable performance of emerging market assets relative to mature market assets has prompted growing interest by global investors in raising their asset allocations to emerging markets and other advanced economies.
"Retail investors and hedge funds are adding to their emerging market portfolios in the near term," the report said.
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