Editor's letter(2)

A recent article in the UK's Spectator magazine examining a possible change in the global financial order said: “One of the least remarked upon aspects of the credit crunch is the way that the emerging markets have become the new safe haven. The days when Asian tigers, or former Soviet republics with difficult to pronounce names, got blown away as soon as a storm swept through the financial markets are long gone.”

That may be true – or it may depend on the ferocity of the storm. Speaking to reporters on the sidelines of Morgan Stanley's recent Asia Pacific summit, the bank's Asia chairman and former chief economist Stephen Roach said he thought it “more likely than not” that the US would enter recession in 2008 as troubles in the housing market triggered a consumer slump. Some have speculated that the world's fastest-growing economies, with their big domestic markets, might have developed immunity to a US recession. Roach isn't one of them. “I think it's ludicrous to think that Asia would be an oasis in a context of global disturbance,” he reportedly said.

For emerging markets, as for developed markets too, the short-term outlook is uncertain. But one thing is for sure: as we discuss in a series of features starting on page 60 of this issue, emerging markets private equity investors have much to be optimistic about. Strong growth rates, burgeoning middle classes and booming stock markets are among the reasons why investors committed $21.5 billion to 107 emerging markets-focused funds in the first half of 2007, according to the Emerging Markets Private Equity Association in Washington, DC. The end-of-year total is expected to represent a new record.

Even if emerging markets do get swept up in an economic whirlwind not of their own making, it's unlikely that private equity investors would retreat en masse. Long-term commitment is the name of the game in private equity generally, where experienced limited partners often point to the importance of maintaining a steady investment pace year-in, year-out and right through the cycle. Given the difficulties attached to timing the market in emerging economies in particular, any other type of approach would seem bold at best and foolhardy at worst.

Enjoy the issue,

Andy Thomsonandy.t@peimedia.com