Effectively, it comes down to personal preference; are you more impressed by the sheer power of centrally-driven China or by the bottom-up effervescence of an India liberated by the likely reforms of the new Congress Party led government?
China remains my personal favorite although India never fails to excite, especially when you look at the way in which local consumer demand is helping counteract the negative impact of falling exports.
It’s a debate which is unlikely to ever have a clear winner. In a way, it’s a bit like trying to determine who was the greatest — The Beatles or The Rolling Stones, Pele or Maradona? However, in this particular debate about economic growth, what is for sure is that the two contenders are rapidly moving away from the rest of the pack. The growth rate differential between these two new giants and the moribund West is widening.
Much was made of the concept of decoupling in the early days of the credit crunch. Experts claimed that emerging economies had established themselves sufficiently to be decoupled from the West, thus insulating them from any Western economic malaise. When this failed to materialize - and emerging market stocks declined exactly in line with those in the developed economies – critics gleefully pounced on what they saw as the ‘
death of decoupling’.
Looking back, the fact that the world’s major economies headed into recession hand in hand does make the idea of decoupling look like wishful thinking. However, I think this concept now
seems to make far more sense on the way out.
The revival in emerging market stocks has come far quicker than it has for those in the developed markets (and the market impact of the Chinese stimulus package should not be underestimated in this revival). Whereas the two sides’ fortunes were inextricably linked on the downward slope, the East now seems far less dependent on the West as it heads for the upslope first.
So, while the East sets its sights on making the revival a reality, the West is still facing up to its post credit crisis hangover, taking an almost perverse pleasure in seeing that — at last — a large automotive company has been allowed to go bankrupt, desperately casting around for any real
light at the end of the tunnel.
To those booming economies in the East, decoupling may now be a post-recession reality — and something of a godsend.
— By Alan Buckle, Global Head of Advisory
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG’s network of independent member firms.
