I believe emerging markets are now in a secular bull market, and as discussed below, I expect this trend to continue into 2011. Even more money is likely to be directed into these markets as investors around the world realize that emerging economies on average are growing three times faster than developed economies, and generally have more foreign reserves and lower debt-to-GDP ratios than their developed counterparts.
The International Monetary Fund has estimated that emerging markets will grow an average of 7.1% in 2010 and 6.4% in 2011, well above the 2.7% and 2.2% growth (in 2010 and 2011, respectively) estimated for developed markets. Meanwhile, foreign reserves in China are the largest in the world, totaling more than US$2.6 trillion. Similarly, Russia has more than US$450 billion, while India and Brazil have more than US$250 billion each in reserves.
Although the slowdown in the global economy had an impact on some emerging markets, we are seeing that these economies are becoming more domestically driven. Private domestic consumption and government expenditure in areas such as infrastructure have at least partially offset the impact of decelerating export growth. The services sector has, in our view, also been gaining in importance, especially in China and India. Generally, I believe that the economic recovery in emerging markets is likely to be sustainable in view of their strong fundamentals. In addition to robust macroeconomic data, financial and fiscal indicators remain positive. Moreover, the search for higher returns in a low interest rate environment coupled with attractive valuations in emerging markets could continue to support equity prices.
I view 2010 as a year of economic resurgence. Many emerging markets recorded strong GDP growth as they continued to recover from the impact of the 2008 financial crisis. In several cases, robust domestic consumption, government expenditure and intra-regional trade offset weak external demand from developed markets. This led many countries in Asia and Latin America to return to pre-crisis growth levels much faster than expected. China and India were among the world’s fastest-growing major economies during the year, with China overtaking Japan as the world’s second-biggest economy halfway through the year. 
Following the unprecedented fiscal and monetary expansion implemented globally in 2009, the focus for a number of major emerging economies shifted in 2010 from stimulating growth to managing inflation. Concerns about economic overheating and inflation in major economies such as China, India, Brazil, and most recently, South Korea, led authorities to steer toward the normalization of fiscal and monetary policies.
It seems we are currently witnessing a largely one-way flow of capital, as money moves from countries of disinflation or deflation to countries with inflation, possibly perpetuating the situation for both. Most developed economies are still mired in slow growth, prompting measures to kick-start their domestic economies such as continued loose monetary policy, quantitative easing and government bailouts, while deficits are spiraling out of control.
The rapid growth in money supply stemming from these expansionary policies is leading to rising commodity prices as investors have higher inflation expectations and thus invest in commodities and equities. This, of course, pushes up domestic prices since the value of raw materials is increasing. As a result, authorities in emerging economies with high growth, such as Brazil, China and India, are trying various methods to prevent their own economies from overheating.