September 23, 2008 / 1:14 PM / 11 years ago

Firms bet on emerging markets in economic downturn

LONDON, Sept 23 (Reuters) - Companies remain determinedly bullish about prospects in emerging markets, despite recent market turmoil which has savaged developing stock markets, a survey said on Tuesday.

Emerging stocks .MSCIEF have lost about a third of their value this year, reflecting investor aversion to risky markets particularly amid recent turmoil, and with worries a developed world slowdown will hurt previously meteoric economic growth rates in countries such as China.

But 87 percent of executives operating within emerging markets are optimistic about company revenues over the next two years and just 3 percent are pessimistic.

Eight out of 10 are similarly optimistic about profitability, the Economist Intelligence Unit poll of 1,300 executives in emerging markets at companies with annual revenues of at least $100 million showed.

Jim O’Neill, head of global economic research at Goldman Sachs, believes they are right to be upbeat.

“I am, despite the enormity of the financial crisis, more optimistic about the state of the world economy,” he told an emerging markets conference in London.

With the U.S. economy no longer dominating in the way it once did, the future would belong to the “BRIC” consumer in Brazil, Russia, India and China, he said.

“It may be that the BRIC consumer is indirectly squeezing out the U.S. consumer,” he said.

Within the BRIC countries as a whole, China is pivotal, since its market is about the same size as Brazil, Russia and India put together.

China is slowing after two years of tightening monetary policy but O’Neill said last week’s interest rate cut suggested that phase had come to an end with the authorities beating the inflation challenge.

David Brennan, chief executive of drugmaker AstraZeneca (AZN.L), and Michael Dell, founder of the world’s second-biggest computer maker Dell DELL.O, both said emerging markets were a central plank of their growth strategies.

For the pharmaceutical industry, the new markets of Asia and Latin America will be increasingly important as growth in the United States and Western Europe stalls, Brennan said.

Dell, meanwhile, hopes a new retail sales model will help it provide consumers in emerging markets with their first computers. It previously sold only online or by phone.

The biggest single barrier to growth in emerging markets is not political instability or poor infrastructure — but skills shortages, according to the survey.

The issue is reflected in alarming rates of staff turnover in emerging markets, with one fifth of companies reporting they have to replace up to half of their staff every year. (Reporting by Ben Hirschler; Editing by Peter Apps and Jon Loades-Carter)

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