Just look at these numbers. The World Bank expects private capital flows to developing countries to fall almost three quarters to $363 billion dollars from $1,200 billion in 2007. It logically follows that if developing countries do have the capital they need, they cannot stimulate their own economies.
Some countries like Russia and China can draw on their foreign exchange reserves. Countries which do not have reserves will have to rely on private capital. The world Bank estimates that developing countries will be short up to $635 billion dollars.
Developed nations are busy restoring their own economies. Yet, we are seeing a sharp drop in output from Japan, Germany and South Korea, due to lack of investment in poorer countries and postponement of purchases of durable goods. Rich countries are putting pressure on their banks to reduce their risks when lending which is adding to the slowdown.
So, while many analysts have been touting the benefits of investing in emerging countries, we must add a note of caution here. What is happening is a shortage of global capital and that shortage will be reflected over all economies, rich and poor. Until world trade restores its normal flows, we can look for flat to small increases here and there as demand picks up.
Do you still believe that investing in developing countries is a good idea?
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Reader Comments (Page 1 of 1)
7-07-2009 @ 1:22PM
Doug T said...
Interesting article. As posted weekly for the past number of weeks on http://www.mutualfundwealth.com/ Emerging Markets have been among the best performing sectors of the global market place. I would expect this scenario to continue in the near term unless the markets run out of steam and drop significantly.