| NEW YORK
NEW YORK Jan 14 Emerging markets are likely to
lead global economic growth this year, with China's economic
slowdown appearing to have bottomed, Columbia Management and
Threadneedle said in their 2013 International Outlook report on
Boston-based Columbia Management, with $340 billion in
assets under management, said approximately 70 percent of the
world's incremental global growth is coming from emerging
markets - even with the big markets of China and Brazil slowing
While growth rate levels may not return to emerging markets
to what it was during the last decade, it will be of higher
quality derived from a consumption-led growth driven by a strong
sustainable middle class rather than by fixed asset investment,
the Columbia Management report said.
The report said Chinese market data shows signs of the
economic slowdown having bottomed, which is a clear plus for
equity markets and risk assets generally. Industrial production,
retail sales and fixed income investments among other data
showed an uptick since September of last year.
"The easing of tail risks in Europe and China leads us to be
more positive on equities than we have been for some time,"
Columbia Management's report said. "We expect the strong to
continue to get stronger in the equity space and M&A activity to
remain an important driver in a number of markets as companies
put their excess cash to work."
Although Columbia Management's long-term view on Japan
remains bearish there is a chance that Japanese equities will
perform well this year, the report said. But an aging population
and a shrinking workforce, a massive government debt problem and
signs that the Bank of Japan will not stick with the
reflationary policy, could likely hurt any returns from the
According to Columbia Management, in 2013, Asian economic
growth will depend on exports. The cost advantage in
manufacturing that initially took developed companies overseas
is still in place, but now in different countries and in
Overall demographics in emerging markets are much healthier
than the developed world, the report said, which will continue
to act as tailwind over time. Demographic "winners" include
Indonesia, the Philippines, Turkey and Brazil and India, while
demographic "losers" include Russia and China.
Young populations with lack of social mobility due to poor
education levels and structural unemployment are often a recipe
for social unrest such as in parts of the Middle East and South
Africa, the report said.
In China, Columbia Management expects to see more progress
made by the government in areas including banking sector
regulation, exchange rate policy, the development of domestic
bond markets and new initiatives to push consumption demand
further as a sustainable source of growth.
Investors' main concern is that China is becoming less
competitive, particularly on the low end of the value chain as
well as the deterioration in the return on invested capital and
earnings of the listed companies.
Markets such as the Philippines, Thailand, Turkey and Mexico
have continued to post very strong returns supported by very
Expectations for emerging market equities are low, but with
the help of accommodative monetary policy, growth seems to have
Asian fixed income, which has grown sizeable enough in terms
of market capitalization, geographic and industries coverage, is
now a distinctive choice of an investment asset class for global
investors, the report said.
In Europe, some of the periphery countries such as Spain and
Ireland appear to be making the necessary structural
adjustments, the report said. Greece, through a series of
measures has made progress on refinancing itself, "but we are
not comfortable they are really dealing with the structural