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Tuesday, August 13, 2013

What’s Behind The Slowdown Of Emerging Markets?

Trader Michael Capolino, left, works on the floor of the New York Stock Exchange Tuesday, Aug. 13, 2013. Stocks are inching mostly higher in early trading on Wall Street after the government reported a pickup in retail sales last month. (Richard Drew/AP)

Trader Michael Capolino, left, works on the floor of the New York Stock Exchange Tuesday, Aug. 13, 2013. Stocks are inching mostly higher in early trading on Wall Street after the government reported a pickup in retail sales last month. (Richard Drew/AP)

Conventional investing wisdom over the past couple years was that emerging markets, such as China, India and Brazil, are volatile but vibrant, whereas developed markets are stable but sluggish.

But it looks like emerging markets might be losing their shine.

Jason Bellini of the Wall Street Journal joins us.

Guest

Transcript

MEGHNA CHAKRABARTI, HOST:

From NPR and WBUR Boston, I'm Meghna Chakrabarti, in for Robin Young. It's HERE AND NOW.

In the business news today, conventional investing wisdom over the past couple of years held that emerging markets, like China, India and Brazil, are volatile but vibrant; whereas developed markets, stable but sluggish. However, it looks like emerging markets might be losing their shine. Jason Bellini is senior producer and reporter at The Wall Street Journal. And, Jason, tell us, those emerging markets, how much, if any, have they cooled off.

JASON BELLINI: They've cooled off a bit. And, you know, what's really interesting here is that the markets in these areas, they're - in the emerging market areas, they've really taken hit, especially compared to those of the developed countries, Japan, United States, European markets. And what's behind all these is a slow down in growth and growth expectations for what were red-hot economies. And China in particular, which had growth that was so rapid as to be unsustainable, is now, you know, cooled off a bit. They're still going to have growth that's over seven percent this year, but the markets are really reacting to the slow down.

They're also racking to manufacturing being down. Export growth is really down in a lot of these emerging economies. It's most pronounced in India, China, Brazil and Mexico. The charts are really stunning when you see what's been going on just the last few months. And you've got the MSCI emerging markets index falling nearly nine percent this year. Energy companies, they represent 12 percent index. They've lost about 14 percent of their value.

CHAKRABARTI: OK. So, Jason, help me understand this now because I'm looking at 2012 numbers for China and GDP growth that year, as you mentioned, was 7.8 percent, Germany, .7 percent, the U.S., 2.2, Japan, 1.9. I mean, we're still talking about, you know, China flexing its muscle just maybe not as heavily as it used to.

BELLINI: Not as heavily as it used to, that's true. And, you know, the interesting thing here as well as the comparison because some of these other countries that in the developing world, you know, we mentioned, Japan. They're going through what many are describing as a renaissance. And so when you look at the comparison here, they're still selling to China. They're still boosting their sales of cars, in particular, and that's because the yen is down significantly. So Japanese companies now log 20 percent of their overseas sales to China. So it's still a huge market.

But, again, when you talk about investors, they're looking for growth, growth, growth, and they're seeing that things are not on the same high, upper trajectory that they've been in the last, you know, five, 10 years.

CHAKRABARTI: Stratospheric is what they've been. But - so what does this mean? I mean, should investors, large or small, kind of give up on emerging markets or just sort of brace themselves for yet another period of maybe downward volatility.

BELLINI: Well, you know, there's some opportunity to be found here. Some of the portfolio managers at The Wall Street Journal I've spoken to has found opportunity in the rising middle class in this part of the world, the developing part of the world. For example, you've got emerging market health care stocks. They make up less than two percent of the overall market, but they've risen six percent this year. And then technology, financials, consumer discretionary, those are still down but not quite as much. And so those two, according to experts we've spoken to, present some possible opportunities, but it's not - I mean, there's no such thing as a sure bet, of course.

(LAUGHTER)

BELLINI: But they're not the sure bet that they've been in recent years. And also, you know, their - this part of the world is also really racked into what happened in the United States in term of our monetary policy. And so we're going to, you know, with interest rates rising, that squeeze credit in parts of the emerging world. So that also is going to have an impact. So you got to take all of these things into consideration.

CHAKRABARTI: All right. As always - but I'm hearing no major restructuring of my 401(k) so far. Jason Bellini, senior producer and reporter at The Wall Street Journal, thanks so much.

BELLINI: Thank you.

CHAKRABARTI: Still to come, reaction to the verdicts in the murder and racketeering file of Boston mobster James Whitey Bulger. We will be back in one minute. HERE AND NOW. Transcript provided by NPR, Copyright NPR.


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