Mexico is the one emerging market which will benefit from the US recovery according to global fund manager Frédéric Leroux.
Leroux, of European asset manager Carmignac Gestion said that the US recovery had so far been “self-centred”.
“US and Japan lead the global rebound last year. But US growth has been self-centred and domestic and has contributed to the weakness in emerging markets over the past couple of years. Unlike in the past, a growing US economy did not mean a rise in imports from emerging markets which would have boosted their markets,” he said at a press conference in Paris this week.
Thanks to significant shale gas and oil discoveries, both the industrial and manufacturing sectors are resurging in the US, and it has repatriated production from China and Latin America. As a result real imports have fallen 25% over the past three years and exports are now making a positive contribution to US GDP.
“US growth will be less contagious of the rest of the world than in the past,” said Leroux. “It is learning to be self-sufficient, and emerging markets will have more difficulty capitalising.”
Mexico Cheaper than China
One emerging market which will benefit from the contagion effect however is Mexico. Mexico has a competitive advantage over other emerging economies thanks to its next-door neighbour.
Unlike China, which is experiencing wage growth and as a result reducing profit margins for companies, Mexico’s wage is stable.
China is also focusing on a more domestic lead economy, which leaves more room from other countries such as Mexico to fill the export gap, servicing recovering developed markets in Europe.
US Economic Outlook
Leroux said that he believed US growth was sustainable, but it would need the backing of the Federal Reserve.
“Mortgage rates soared when Ben Bernanke first announced plans to taper the quantitative easing package,” he said. “In order to encourage consumer spending, which boosts the economy, mortgage rates must be controlled. We feel like there will be growth in the US this year, but it still needs the support of the Fed.”
One hurdle standing in the way of US growth is the lack of wage inflation. While the job market has significantly improved, wages have not risen.
“The economy is creating jobs but consumer spending has dipped as households have a lack of available money to spend,” said Leroux.
