Comment: Developed world emerging as safe market

It resembles a game of equities’ whack-a-mole, where each attempt by those markets to tentatively raise their head above the parapet in the storm gets a sceptical thump from investors for their trouble.

Global banking giant HSBC, historically skewed heavily to emerging markets, helped dent sentiment recently, with halved profits from Latin America and particularly disappointing performances in Brazil and Mexico.

The bank said Chinese growth had also slowed unexpectedly, and it led HSBC chief executive Stuart Gulliver to attempt damage limitation by saying that those regions “also have their business cycles”. But it also unnerved many investors as it seemed like a disturbing straw in the wind.

Of more concern to asset allocators now is if the Federal Reserve in the United States cuts back its quantitative easing programme, as the central bank has flagged, and that the end of the era of artificially cheap money will choke off investment in less developed markets. Recent Western economic data has also been much better, leveraging the competitive threat. It is ironic. Emerging markets have been the guy in the white hat for business and stock markets for so long. Their strength is a core argument of the British eurozone exit club.

You have to go back to 1997-98 for the last episode of financial turmoil in Asia, and its Eurasian cousin, Russia, with the main problems then being currencies under pressure, devaluations and debt defaults.

By contrast, emerging markets were relatively unscathed by the 2008 systemic financial crisis, certainly compared to America and western and southern Europe, up to their necks in household, bank and sovereign debt.

Likewise, less developed markets could look on with some condescension as the eurozone crisis dominated 2011 and 2012.

But time moves on. Almost imperceptibly, more developed markets are now bit-by-bit being seen as possibly a better haven for investors’ money.

A lot will now depend on developments in those two pivotal economic and political rivals, America and China. Emerging markets, from South America to India and the Asia-Pacific, depend for capital inflows on the US’s traditional position as consumer of last resort.

Even a tapering of the Fed’s monthly bond purchases will cause nervousness in less developed parts of the world. Separately, Asia, in particular, will be nervous until the Chinese economic locomotive – powered by the Australian raw materials quarry in its backyard – hopefully shows its slowdown is both relative and transient. Whatever the direction of the wind, however, the current volatility has highlighted one thing: mirroring the traditional investor warning that stocks can go up and down, it is clear now that so can emerging markets and emerging economies generally.

Menzies’ flight of fancy is a right riveting read

A TALE of two divisions at Scottish group, John Menzies. Aviation services profits up; magazine and newspaper supply down. The corporate headline has been the same for some time now.

Menzies’ ramping up of the aviation business in the past decade to anticipate the systemic and cyclical decline in distribution looks a marriage of vision and pragmatism.