2013 was a rough year for the emerging markets. When Federal Reserve Chairman Ben Bernanke first hinted in May that the Fed would soon begin tapering its stimulative quantitative easing program, many of the emerging markets got slammed with stocks, bonds, and currencies losing value precipitously.
However, the turmoil in these financial markets could be far from over.
When we asked Michael McDonough, Bloomberg LP’s Global Head of Economics, for what he considered to be the most important chart of the year, he sent us the evolution of economists’ GDP growth forecasts for various regions around the world.
“This chart exposes what the end of QE, and higher rates, could mean for emerging markets,” said McDonough. “We are on pace to see the long-standing trend of emerging market growth outpacing developed market growth reverse.”
Some experts, like market strategist Rich Bernstein, believe this trend is good reason to bet more on the U.S.
“Contrary to what many might assert, the emerging markets are not the world’s best growth story,” said Bernstein in November. “As we have pointed out many times, US small cap companies offer superior growth to that offered by the emerging markets. The US is now a better growth story than are the emerging markets!!”
2014 will be riddled with political landmines in the emerging markets as many countries will be holding elections. This promises to bring efforts to advance political interests over economic ones, which means programs to spur growth will likely be put on hold.
“Investors are going to have to be a lot smarter about their EM investments over the next several years and this chart illustrates that trend,” said McDonough.
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