Inflation in emerging markets

in many emerging-market countries, inflation is already running near the top of official target ranges. Indonesia and Turkey are seen at risk of falling behind in the inflation fight—if they haven't already—which could force much more aggressive rate increases down the road. This is especially bad news for bond investors, who see the value of their fixed-income returns eroded as inflation rises.

"We currently view overheating within the emerging-market complex as the greatest macro peril facing the global economy," Michael Shaoul of Oscar Gruss & Son wrote in a research note Friday.

Even before scenes of pitched battles in the streets of Egypt dominated the news, investors were growing nervous about inflation, turning tail on some markets. For the week that ended Jan. 26, emerging-market stock funds suffered their biggest spell of withdrawals since the third quarter of 2008, according to EPFR. The MSCI emerging-markets index has lost 2% this year even as the Dow Jones Industrial Average is up 2%.

While most of the moves in emerging markets haven't been big, they mark a change in the outlook from 2010 when their fortunes seemed much brighter than that of struggling developed markets.

Many observers are especially cautious about the near-term outlook for bonds denominated in local currencies. This had been a particularly popular investment in 2010.

With interest rates near zero in the West, investors bought higher-yielding bonds in places such as Indonesia, India and Brazil. As these economies grew, the theory went, monetary authorities would lift interest rates, which would attract even more investors, forcing up currency values and giving an added boost to returns.

Wall Street Journal

Global Median Age

I think the boundaries of economics and politics will redrawn and this map is just a glimpse of what will happen in next couple of decades.

China Will Face Crisis Within 5 Years, 45% of Investors Say

Thus says Bloomberg

"Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years.

An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil.

“There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown.

On Jan. 20, China’s National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion).

Any Chinese financial emergency would reverberate around the world. The total value of the country’s exports and imports last year was $3 trillion, with about 13 percent of that trade between China and the U.S. As of November, China also held $896 billion in U.S. Treasuries. The trade and investment links between the two nations were underlined with Chinese President Hu Jintao’s visit last week to the White House for meetings with President Barack Obama.

Worried Neighbors

Fifty-three percent of poll respondents say they believe China is a bubble, while 42 percent disagree. China’s neighbors are the most concerned: 60 percent of Asia-based respondents identified a bubble in the world’s second-largest economy.

Worries center on the danger that investment, which surged almost 24 percent in 2010, may be producing empty apartment blocks and unneeded factories.

Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, says he is “exceptionally worried” that the Chinese would eventually face “major dislocations within their banking system.”

Chinese authorities also raised interest rates twice in the fourth quarter in a bid to choke off inflation, a sensitive political issue since the 1989 Tiananmen Square protests, which followed uncontrolled price increases. Food prices last year rose 7.2 percent, according to the National Bureau of Statistics."

Energy Use Per Unit GDP

"Energy intensity is converging across the world

THE energy required to produce a unit of GDP is falling in most countries around the world. As countries industrialise, energy-intensive businesses make up a bigger share of the economy. Peaks generally correlate to the high point of heavy industry, before lighter industry and higher value-added businesses (such as services) begin to replace old-fashioned smokestack manufacturers. This often coincides with gains in energy efficiency, too. According to BP’s "Energy Outlook 2030", published on January 19th, globalisation will lead to a similar level of "energy intensity" across the globe by 2030, despite wild divergence in the past, as energy is traded freely and consumption trends and technologies spread."

The Economist

The Growth Machines

The GDP growth rate of african countries continues to impress. I think the 2 reason which will continue to be in africa is 1) Natural resources and 2) Population

"MUCH has been written about the rise of the BRICs and Asia’s impressive economic performance. But an analysis by The Economist finds that over the ten years to 2010, six of the world’s ten fastest-growing economies were in sub-Saharan Africa. On IMF forecasts Africa will grab seven of the top ten places over the next five years (our ranking excludes countries with a population of less than 10m as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead). Over the past decade the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will outpace its Asian counterpart."

Says The Economist

Believe it or Not

Now believe it or Not US stocks were the best performers compared to all emerging market. so all the hullabaloo over US perishing and EM frenzy is far from reality. The above graphic shows the dollar adjusted returns

Food Inflation

These are powerful macro trends at work. The rapid wealth expansion of emerging economies, supply side constraints and the growth of market speculation make a strong case for this macro trend to continue in the coming years