Excel Funds Management Inc.

Emerging Markets

Emerging economies have kept debt in check

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Equity markets in the US, Japan, and Europe have rallied significantly and have outperformed emerging markets for the year. However, this will be a one year anomaly as borrowing and printing money does not drive prosperity. While Western countries have used the slow economy as a chance to rationalize excessive government borrowing and spending, emerging economies have been able to maintain stability in their governments’ balance sheets. Debt to GDP ratios have climbed in the US, Japan, the UK and the Eurozone rapidly since 2000.

Italy and Greece, which already had debt levels above 100% back in 2000, show the long term consequences of excessive government spending. Their economies are two of the world’s slowest growing economies in the 21st century. The rest of the heavily indebted countries could face the same struggle. They will have to choose whether to cause a recession through a “fiscal cliff” style austerity or continue deficit spending until a debt crisis or high inflation erodes the real purchasing power of the country’s citizens. Both outcomes are severe anchors to future real GDP growth.

Emerging economies on the other hand have kept debt in check. If a Chinese hard landing slows down the region, Asian economies have the cash reserves to stimulate the economy. In addition, emerging central banks can allow domestic currencies to appreciate and stimulate consumption through increased real purchasing power. A rising currency may cost these countries exports in the short term, but those will decline already due to the struggles in Western economies.

With Debt to GDP ratios in emerging markets countries lower due to the higher growth in the region verses developed nations, emerging market debt provides a less volatile option to investors. We have seen equity like returns from this asset class within the past year and it should continue to offer great returns and diversification to investors worldwide.  

Written by Sam A.

Debt Levels Will See Developed World Underperform Emerging Markets


Author: Excel Funds Management

We Are Leaders. Our Focus is Undivided. Excel Funds is Canada’s specialist in Emerging Market investment opportunities. We pioneered Emerging Market mutual fund design and distribution in Canada. Our focus is undivided – Emerging Markets is all we do. Our Mission Is To Offer Canadians True Global Access By offering Canadians access to rapid growth markets, Excel Funds provides truly global and diverse investment value. Our clients want consistent, responsible and intelligent solutions – we will never stop being challenged and deliver on client expectations. We Listen. We Are Determined To Deliver. Our clients want to understand better. Excel Funds is the only company dedicated to providing investors with actively managed, best-in-class Portfolio Managers based in regional markets. In order to deliver deeper understanding, we are not removed from unique cultural, political and economic experiences. We Initiate. We Create. Investors benefit from strong, sustainable growth. To create wealth for our clients we will: • Offer globally diverse opportunities to capture shifts in world economies • Not resist change and continually lead in Emerging Markets global growth • Engage world class institutional managers for retail investors We Are Passionate. We Will Never Stop Innovating. True leadership is enabling and seeks a positive outcome for all invested. We will not rest on past success, and continue to provide clients with: • Innovative fund structures • Canada’s largest & most comprehensive Emerging Markets products • The best institutional level Portfolio Managers • World class on-the-ground active managers • A singular focus on Emerging Markets, the driver of global growth

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