Chin Up in the Downswing

positive economic news during recession

And Now for Something Completely Different: Emerging Markets

June 05, 2009 07:00 PM
by Anne Szustek
Positive business and financial news of June 5, 2009: Emerging markets are poised to recover well from the recession.

Emerging Markets Power Through, Help US Companies

The MSCI Emerging Markets Index, which measures market performance in 22 emerging market nations, as of Tuesday was up 36 percent for the year. This outpaces Wall Street by leaps and bounds. The Wall Street Journal points out that the Dow Jones Industrial Average and the S&P 500 are at roughly the same levels as they were around the start of the year—and this is after Wall Street’s slow and steady recovery since mid-March.

Prices for commodity foodstuffs, including wheat, soybeans, corn, poultry and red meat, are still flush, thanks to strong emerging market appetites such as grain sales from Middle East and Asian countries and the meat demand from Mexico, Cuba and Venezuela. Consumer goods sales, including fast food, are also robust. Yum! Brands, the parent company of Pizza Hut, KFC and Taco Bell, has reported a 2 percent year-on-year increase in same-store sales in China, helping to feed the company 1 percent growth in same-stores globally during the same period.

Emerging markets have been powering ahead in construction and manufacturing, most notably the infrastructure projects backed by China’s $585 billion stimulus package. The April 30 edition of Chin Up profiled U.S. commodities producers that stand to benefit from China’s stimulus package, including U.S. Steel Corporation and mining company Freeport-McMoRan Copper & Gold. Over the past five-odd weeks, both stocks have gained, with the latter up 122 percent since Jan. 1 on the back of rising gold prices.

Money Heading Toward Emerging Markets

Emerging markets’ success has definite spillover potential for the U.S. economy. And given Asia’s woes with the Asian financial crisis roughly a decade ago, those countries have experience with managing their money in tough times.

During this latest economic slump, which The Economist notes has hit Asia as hard as the crisis of the late 1990s, the region could be among the first to bounce back. “Emerging Asia could see annual growth of almost 7% over the next five years,” reports The Economist, “around three times as fast as in the rich economies.” This projection is one of the more conservative and is based on an assumption that emerging markets in Asia have zero net exports, which largely correlate on demand from the West.

Perhaps emerging market nations will get even more practice in terms of money management over the coming months, should projections made by Templeton Asset Management’s Mark Mobius hold. According to Bloomberg, Mobius said that “emerging-market equities will rise faster than developed-country stocks.” Already on the curve: Russia’s RTS index, in which Templeton is investing, is up 75 percent this year, topped only by Peru in terms of international financial markets.

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