This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Balas: A Tough Slog for Emerging Markets

Editor's Note: This article was originally published at 1:30 p.m. EDT on Real Money on Aug. 16. To see Gene Balas' latest commentary as it's published, sign up for a free trial of Real Money.

NEW YORK ( Real Money) -- Sluggish global growth is evident in emerging markets. As demand from developed economies reduces exports from developing economies while consumer demand in those emerging markets is still not yet fully matured, some emerging economies are feeling the pinch. Even though global inflation remains contained, certain emerging markets are running into capacity constraints, with resultant inflation above desired levels.

The Dallas Fed did a good job summarizing the difficulties these economies face. Some origins of those issues can be traced to the developed world. Europe has only recently emerged from recession, and demand from that region has been sluggish. Meanwhile, Japan and the U.S. are not growing by leaps and bounds, either. Other problems are endogenous to some countries -- witness the turmoil in Egypt, for example, not to mention protests in Turkey and Brazil.

Consider examples of slowing emerging-market economies. After posting an average of 8.6% from 2003 to 2007, India's first-quarter growth printed at 2.8%. Indonesia's exports have been sliding for 15 months, with a June decline of 4.4%. Retail sales, industrial production and Purchasing Managers Indices (PMIs) came on the soft side for Brazil and Mexico. South Africa saw June exports declining 7%, though July PMI reaching a five-month high of 52.2. Turkey's manufacturing PMI dipped below the 50 threshold in July to 49.8. A good part of this weakness is due to sluggish demand from the developed world.

Then there are issues with external imbalances. Since mid-2011, capital inflows into emerging economies have moderated, largely as a result of declining cross-border bank flows (mainly from European banks after the eurozone crisis dip in 2011-2012). With fewer investment funds flowing into these economies, currencies in some nations have been under pressure, particularly those with large current account deficits. The currencies of South Africa, India, Indonesia, Turkey and Brazil depreciated the most. Of course, moderate external debt burdens in a number of emerging markets and the cushion of accumulated international reserves can alleviate some of the issues with any short-term capital outflows in such countries.

Even so, when a currency falls in value, buying imported goods is more expensive, especially commodities that are often priced in dollars. This can push inflation up. To combat inflation and increase the value of their currencies, some emerging markets have been tightening monetary policy, which can slow their economic growth. Slower growth might even be desirable in some countries if it will lessen inflation pressures. Recently, production capabilities and labor force constraints might not support the same pace of rapid growth as had been seen in the years before the recession. If an economy grows faster than its constraints of labor and capital can support, inflation often results.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,679.10 -151.66 -0.85%
S&P 500 2,055.48 -20.33 -0.98%
NASDAQ 4,749.5590 -55.7320 -1.16%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs