Friday, September 19, 2014
The grinding down of emerging market growth
The graph shows the revisions in growth forecasts for emerging markets over the last few years. It is a one way story where economists have had to continually adjust downward growth expectations.
While the link between economic growth and stock markets is weak, the general view is that growth is necessary but not sufficient for stronger equity markets. Growth provides the fuel for top-line sales and potential earnings. We have weaker growth, so without increases in valuation it is unlikely that we will see EM equities increase. Clearly the market believes that slower growth currently will have toll on equity levels. The headwinds are against EM equities.