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Patrick Allen
CNBC
Overheating emerging markets, in China in particular, pose the biggest threat to the market and political situation in 2011 according to Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
“These economies are clearly overheating and governments are putting measures in place to slow them down to fight inflationary pressure. More than anything else, food inflation is a problem,” Gijsels told CNBC.com.
“In countries where 70 percent to 80 percent and sometimes more of a family’s budget goes to food, explosive price rises risk to destabilize these societies. Remember the old saying: ‘hunger starves civilizations,’” he added.
“We believe that some of these governments will be quite aggressive in their inflation fight. And we do not even want to think about the consequences if this year were to have a disappointing monsoon,” Gijsels said.
He is worried that everyone is so bullish on China’s ability to engineer a soft landing.
“There is almost no emerging market bear to be found. And that in itself is already scary,” Gijsels said.
“Nobody will be surprised when we see more (economic) volatility in Europe or even the USA stronger slowdown in emerging markets than we currently expect would take everybody by surprise. Therefore its market impact would be much more violent,” he added.
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