The changing shape of global economies could lead to increased protectionism in emerging markets as they attempt to avoid being sucked into a developed world slowdown.
That is the main challenge facing emerging markets in 2012, according to leading Norwegian boutique Skagen. The comments were made as part of an update on the current performance of the Skagen Kon-Tiki fund.
Outlining potential risks for the sector, the company said the changing dynamic of the global economy, which is set to see Asia become a driving force, is set to lead frictions between the emerging and developed world.
Therefore, Skagen said, emerging markets could adopt more protectionist approaches in order to safeguard against unemployment in industrialised countries and potential contagion from the eurozone.
Another major factor in growing protectionism, Skagen said, would be the status of emerging market currencies. It said, at the moment, falling EM currencies is helping defend resource-rich nations, such as Brazil and Russia, against falling commodity prices.
In addition, a multitude of issues in China are also set to rise to the fore in emerging markets, such as capital requirements and questions over the health of the country’s property sector.
In a development in the emerging market space, Skagen expects the major areas of growth to be Brazil, India, China and Indonesia – a notable change from Russia, which would traditionally have been grouped with these countries.
Over the past three years, the Skagen Kon-Tiki has returned 119.42% while the MSCI EM TR has risen by just 88.79% over the same period.