IEG: Emerging markets, financial volatility, and opportunities for UK financial and related professional services

In recent months financial markets have been focused primarily on developments in advanced economies, as political changes in Europe and the Americas eclipsed concerns about slowing growth and financial volatility in developing economies.

But emerging markets have been and will continue to be a crucial source of global demand. In the wake of the Brexit vote, the opportunities presented by emerging markets have taken on a renewed importance, given the possibility that the UK will need to be more reliant on trade and investment relationships with economies in the Americas, Asia-Pacific, and the Middle East and Africa. Moreover, any sharp emerging market slowdown could have direct effects on advanced economy financial markets.

This report analyses the trends of recent emerging market growth, the economic links between developed and emerging markets, and the opportunities that emerging markets currently offer UK-based financial and related professional services. It sets out a number of conclusions, including the following:

  • Emerging markets are not a generic grouping; they are diverse in terms of economic size and structure, demographics, and level of economic development. 'BRICS' is more relevant as a marketing slogan than an economic reality; China dominate the grouping on all levels and indeed dominates the emerging markets story overall.
  • A reliance on Chinese growth has increased vulnerabilities for the global economic and financial system given the mainland’s deteriorating demographics, growing debt burden and economic transition. Commodity-dominated economies are particularly vulnerable to slowing Chinese growth.
  • Geopolitical factors and continued economic liberalisation will provide growing opportunities for financial services companies operating in emerging markets. The UK’s role as a leading international financial centre places it in a good position to lead in areas such as infrastructure financing and provision of services and advisory work for emerging market corporates and sovereigns.