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Narrowing gap for emerging and developed markets
The divide between developed and emerging market economies is likely to narrow in the coming year as developed nations experience a pick up, according to Aberdeen Asset Management's 2011 forecast.
Aberdeen predicts that as developed economies grow, there will be some deceleration in emerging markets, resulting in the performance gap narrowing in both absolute and relative-to-trend terms.
There is also renewed concern about elevated commodity prices like food in emerging markets, with market expectations for global inflation increasing.
In non-Japan Asia, rising inflationary pressures in countries like China and India have increased the risk of an enforced economic slowdown, which will have knock-on effects for Australia.
Add to this the tight labour markets and the impacts of the Queensland floods and cyclone season, and Aberdeen believes the risk for a wage and inflation spiral in Australia is still real.
Aberdeen also predicted that the global environment would be mostly constructive for credit markets, despite the remaining risks of weak US employment and housing, Europe's unresolved sovereign debt issues and rising political tensions, and inflationary risks in Asia and Australia.
The company said the key challenge for the year would be to reconcile these risks with an otherwise positive environment for credit assets and, especially, non-financial corporates.
Aberdeen's final prediction is that despite predictions of a burst property bubble for the coming year, it still believes there is value in the sound but illiquid Australian residential mortgage-backed securities sector.
AUTHOR
Ashleigh McIntyre
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