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While most global markets rose slightly on Thursday in reaction to the last-minute debt deal in the United States, which prevented the world's biggest economy from default, analysts said emerging markets should not "lay back" amid growing macro-economic challenges and the need for reforms.
Although the ruling Democrats under U.S. President Barack Obama and the oppositional Republicans agreed to raise the debt ceiling above 16.7 trillion U.S. dollars through Feb. 7, 2014, the emerging markets are out of the woods considering declining growth and rising macro-economic challenges, analysts said.
Earlier last week, the International Monetary Fund (IMF) revised down its growth forecast for the world economy for 2013 to 2.9 percent, 0.3 percentage point lower than its July estimate.
"Emerging markets are experiencing a broad-based slowing of growth which contrasts with the gradual pick-up of advanced economy growth momentum," said George Abed, director for Africa and the Middle East at the Washington-based global banking lobby group Institute of International Finance, in his research note published on Oct. 7.
"The IMF claimed that the slowdown in the Emerging Markets is to blame," said Gerhard Schubert, the head of commodities at Dubai 's biggest bank Emirates NBD.
Schubert said in his weekly commentary on markets that whilst China's exports fell 0.3 percent in September year on year, " imports rose by 7.4 percent ... and trade surplus still reached 15. 2 billion dollars for the month. He was more worried about India. "The Indian industrial output rose in September by 0.6 percent, compared with September 2012... This rise is much weaker than anticipated and comes after an August rise of 2.75 percent, year on year."
A deteriorating infrastructure also weighs on growth prospects in the sub-continent.
Tim Reid, the regional head of commercial banking at HSBC in Dubai said India required approximately 1 trillion dollars' worth of infrastructure investment by 2018, citing figures compiled by the Indian ministry of commerce and industry.
Abed noted on the external side, current account balances in the emerging markets had deteriorated. "The massive current account surplus of emerging Asia fell substantially, primarily reflected in a lower surplus in China but also a widening deficit in India and Indonesia."
Abed added some emerging markets were struggling with inflationary pressure. "On the one hand, policy interest rates were hiked in Brazil, India and Indonesia in order to stem inflationary pressures and support depreciating exchange rates. On the other hand, rates were cut in several central European countries in order to promote growth," he said.
Regarding the debt problems in the United States, Abed said that rising debt levels were also becoming an increasing problem in some emerging markets. He explained that at 145 percent, the Chinese corporate sector had a markedly higher debt-to-GDP ratio than other emerging markets (17 percent to 50 percent) and most major mature economies.
"Brazil, Turkey, Poland and Russia also saw marked increases in private debt. By contrast, private debt has grown only moderately in Mexico and Saudi Arabia, and has even declined in South Africa, " said Abed, adding "China, India, Indonesia and Turkey all face major challenges ahead in the area of regulatory reform."
This leads Arjuna Mahendran, chief investment officer at Emirates NBD, to recommend buying United States shares than emerging markets stocks at the moment as he expects resumption in the rally at the New York stock exchange after the debt deal in Washington.
