Dubai: Growth potential and a long-term outlook for emerging markets remain structurally intact despite cyclically declining exports and capital outflows, a research report released on Sunday said.
According to Credit Suisse Research’s latest edition of Global Investor, looking forward to an eventual recovery from the current crisis, growth led by domestic factors in emerging markets is set to succeed debt-fuelled US private consumption as the most important driver of global economic growth over coming years.
“The initial direct shock from impaired capital positions of banks on credit availability has generally been lower in emerging markets and external debt levels have declined in recent years.
“Nevertheless, capital flight in a global deleveraging process has put emerging markets under pressure. Despite cyclical difficulties, the long-term fundamental catch-up process and growth drivers for emerging markets remain structurally in place.
Given their substantial long-term growth potential, we expect capital to flow back,” the report said.
The Global Investor is a research-based journal discussing and advising on macro-economic and long-term investment trends.
“Supported by fundamental advantages, including demographics, emerging markets are expected to outperform industrialized countries in three categories essential for economic growth. These include employment, using more capital and boosting productivity,” the bank added.
Private consumption growth is expected to be stronger than in developed markets, as several hundred million people obtain the means to demand more than basic necessities. In addition, there is still an obvious need for infrastructure development in many emerging markets.
Commodity prices should ultimately be supported by a structural uptrend in global demand, thus stimulating commodity-exporting economies.
It further says that building robust investment strategies and managing the risk of these are more important than ever.
“The credit crisis has created great uncertainty for investors around the globe. The value of many assets has decreased in the wake of market volatility and the global recession arising from the crisis. Against this backdrop, it is more important than ever to build robust investment strategies and focus on risk management,” it said.
Asset allocation is responsible for a large part of portfolio performance. While the relationship between risk/return and diversification across asset classes are the two core building blocks of successful portfolio construction, investors also need to be aware of the limitations of these and react accordingly.
Continuous risk management is seen as an integral part of implementing any investment strategy. One useful approach is scenario analysis to gauge how an investment strategy or a portfolio would perform in extreme events, according to Giles Keating, Credit Suisse’s Head of Global Research.