What's good for the global economy's superpowers risks creating losers in other parts of the world.
Signs that the Federal Reserve is preparing to curtail its stimulus are boosting interest rates abroad as well as in the U.S. The strictest credit squeeze in China in at least a decade threatens to erode a pillar of international growth. Japan's reflation push is lifting the exchange rates of trade rivals and luring capital.
While the transitions could mean slower growth in the U.S. and China, they ultimately prime the three biggest economies for less volatile and longer-lasting expansions. Losers for now include the emerging markets and commodity producers previously buoyed by easy U.S. monetary policy and Chinese demand. Economies that still need cheap cash or weaker currencies, including the euro area, also could suffer. Policy makers already are responding.
"Pieces of the world are moving, and when that happens you have frictions," said Stephen Jen, co-founder of hedge fund SLJ Macro Partners LLP in London. "There's more divergence, and financial markets will see more volatility."
The shifts are reflected in Credit Suisse Group AG's observation that the gap between developed- and emerging-market growth rates is expected to remain close to the narrowest in 10 years, at 4 percentage points in 2013. Further unwinding the trend set in the wake of the 2008 global financial crisis, Morgan Stanley and Citigroup Inc. economists are among those who recently cut forecasts for expansion in emerging markets, while lifting their outlooks for industrial nations.
David Fuller's view This article makes some good points. There
are inevitably fundamental factors behind every significant trend. However,
they are also fuelled by fashion and self-feeding momentum strategies, which
are more fickle and variable.
A recovery by China's stock market, which I expect from current levels, will certainly help many emerging markets. However, when I look at 20-year monthly charts for some of the leading Asean indices, such as Indonesia, The Philippines and Thailand, I wonder if they are now susceptible to several years of choppy ranging before the next big upswing.