Sub-prime fallout for emerging markets

A leading emerging markets expert has warned that Asia and emerging markets cannot totally decouple from the sub-prime issues afflicting the United States.

Templeton Asset Management’s Dr Mark Mobius has pointed out that a significant portion of exports from Asia and emerging markets are still destined for the US, which remains the world’s largest economy.

He said that on this basis, a slow-down in the US economy could lead to a reduction in domestic demand, thus, the subsequent influence on emerging markets could not be avoided.

However, Mobius said that Asia and emerging markets had demonstrated stronger economies and that one of the key supporting factors for investing in Asia remained its robust economic growth.

Mobius said that, thus far, the sub-prime issue in the US had had a limited impact on emerging markets.

“However, the impact on financial corporations which have a direct exposure to sub-prime mortgages could be significant,” he warned.

“The real concern for emerging markets is the likely impact on consumer spending and export demand in the US, which could subsequently result in a faster-than-expected slowdown in the US economy,” Mobius said.

He said that while dependence on theUSas an export outlet has been decreasing in emerging markets, they may not be completely shielded in the event of a major slowdown in theUSeconomy. Volatility is thus expected to continue in the short term.