Fiscal Cliff and Greek Bailout – How about Emerging Economies?

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Stock markets have taken a beaten the world over as poor economic data, concern over U.S. budget discussions and a dramatic increase in global instability with violence in the middle east and protests spreading across the EU. Markets opened cautiously this morning anticipating difficult negotiations between Obama and congress in regards to the upcoming fiscal cliff. The markets clearly recognise that a solution to this impending catastrophe will be hard to find. Some market analysts have even accused the markets of being overly optimistic in their approach to the budget issues, claiming investors optimism is not matched by the political discourse around the subject.

America’s fiscal problems have been compounded by on-going problems in the EU, especially as markets grow ever more concerned about the outcome of the Greek bailout. As of yet, no agreement has been reached between the European Troika and Greece, meaning bailout money is still being withheld. Christine Lagarde, head of the IMF (International Monetary Fund) has decided to cut her Asian tour short in order to return for further talks on the 20th Nov., insisting that something must be done if Greece is to survive under its growing pile of debt.

With all the turbulence currently taking place around the world it can be a little off-putting for any investor. When Europe seems to be stumbling around in the dark and America is on the verge of walking off a cliff, where do you put your money to keep it safe? The answer may be to look at emerging markets where growth rates have been high. So high in fact that is has been commented that the ‘global’ recession actually only affects about one fifth of the world’s economy. In other words, this is a very western crisis. Admittedly a crisis in the west has knock on affects, given the influence of western economies, however, places such as Turkey, Poland, Mexico and other parts of Latin America are still posting impressive growth rates. Therefore, the best places to look for profitable investment are probably in these economies. The issue is of course, that risk will be higher, as less controls, regulations and safe guards exist.

By Dan Marwick