Emerging markets: The Economist

Dizzy in Boomtown
Nov 15th 2007 | HONG KONG
From The Economist print edition

The boom in emerging economies and their stockmarkets is not over yet. But some are likely to run out of breath sooner than others

THE world is experiencing one of the biggest revolutions in history, as economic power shifts from the developed world to China and other emerging giants. Thanks to market reforms, emerging economies are growing much faster than developed ones. There is a widening gap between their growth rate and that of the sluggish developed world. According to the IMF, this year they are growing almost four times as fast.
Emerging economies account for 30% of world GDP at market exchange rates (and over half using purchasing-power parity to take account of price differences). At market exchange rates they already account for half of global GDP growth. And by a wide range of measures, their weight is looming larger. Their exports are 45% of the world total; they consume over half of the world’s energy and have accounted for four-fifths of the growth in oil demand in the past five years (explaining why oil prices are so high); and they are sitting on 75% of global foreign-exchange reserves.
The increasing strength of emerging economies has been reflected in their stockmarkets, which have climbed steeply in recent years. Share prices in many emerging economies are showing signs of altitude sickness, with recent sharp falls in China and other markets. Even so, since 2003 Morgan Stanley Capital International’s emerging-market index has jumped more than fourfold in dollar terms, compared with an increase of only 70% in America’s S&P 500. Top of the mountain has been Brazil, with an incredible gain of 900%. Over the same period, emerging economies’ output has grown by 35%; the developed world’s by only 10%. More than ever before, emerging economies are being relied upon to help lift the world economy. But can they keep up the effort? More