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Global funds to transfer money from developing to developed markets
09.03.2011 Cyril Tremasov, director of analytical department of the Bank of Moscow.

The allegation that the developing world has become a major engine of global economy in recent years it has become common place. Post-crisis recovery once more to convince investors of the validity of this thesis. Indeed, developing countries are generally more relaxed and had survived the crisis in the developed world have begun the process of recovery. Many developing economies have successfully "undocked" or, more precisely, to significantly reduce its dependence on the demand of American consumers shifted to domestic demand and intra-trade. Against the background of macroeconomic processes paradigm prioritize investments in emerging markets has become the dominant investors, as reflected in anticipatory dynamics of their stock indexes.

However, in early 2011, it seemed, no doubt paradigm unexpectedly failed. In fact, since the beginning of the year we observe the change of investment priorities - money leaving developing and move to the developed markets. Nothing of the sort we have not seen for many years!

Of course, the main reason for the change of the vector of cash flows is the situation in the Middle East, which adversely affects investors' appetite for risk. However, in addition to market factors in this trend, there are more serious fundamental rationale - namely, the much improved macroeconomic indicators in developed countries.

After rapid growth in the past year, this year the economies of developing countries start to slow down, becoming increasingly clear cooling in China. At the same time developed countries, by contrast, are gaining momentum, and this year, their growth will be quite comparable with rates in developing countries.

Especially impressive looks the economic situation in the U.S.. Yes, real estate and construction sector, there are still at the bottom, but if you look at the dynamics of industrial production and retail, then we can talk about the robust economic recovery. But the most important point in analyzing the American economy - a state of the labor market. Even at the end of last year is no reason for optimism is not observed, but in January and February the situation seems to be broke: unemployment has fallen sharply from 9,8% in November to 8.9% by the end of February, the process of job creation has accelerated, and the number of applications for unemployment benefits well established at a level below 400,000 hits per week (pre-crisis value of this index - 300 000-350 000). If observed trends persist, it is already on the results of this year, U.S. GDP growth could approach 4%, and unemployment - down to 7%.

In developed countries compared with developing, there is one major advantage, it is extremely topical at the moment. We are talking about inflation risks. Many developing countries, began to emerge from the crisis sooner, to date, have been overheated and is fully experienced by all the "charms" of inflation. At the same time, the U.S., by contrast, continue to promote policies and yet do not even hint at rate hikes. Of course, in the future Fed policy can lead to serious inflation surge and trigger a new crisis in the global economy (monetary incentives can be effective only in the short term, but does not affect potential output in the long term), but the development of this cycle can take no one year. At the same time the inflation picture in the United States is a compelling argument in favor of investment in this country.

Analyzing the table below, managers of global funds may well ask a reasonable question: why did I buy a developing country with a 4% economic growth and 4-6% strength by inflation, if there is a U.S. GDP growth at 3-4% and depressed consumer inflation within 2%, while the premium in the price of the stock of U.S. assets in emerging markets, in some cases absent (such as in the case of Mexico and Indonesia), and in some cases so small that does not correspond to institutional risks (Turkey , Brazil)?

Is there a reason why this article is twice as long as necessary? Is there a reason why this article is twice as long as necessary?

Corrrrrected, thanks !