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Finance ministers likely to have more clout - economist

 Cape Town - The next phase of the low interest rate experiment among central bankers in the developed world, will likely be the passing of the baton from them to finance ministers, according to Investec economist Chris Becker.


"Finance ministers will then be the ones with the clout, so it is very important to see what their policies are and where they will spend for growth," said Becker.

He explained that it is very difficult to assess the markets at the moment.

"It is hard to value asset markets - zero percent interest rates are to markets like removing gravity is to the earth," he said at a media briefing.

There is also an equalisation of political risk due to the rise of populism that leads to uncertainty in the west.

There are three interesting global themes which could have an impact in emerging markets, in his view.

These are what he calls the upside down global economic order; the populist movement as illustrated by the Trump election; and the baton like being passed to finance minister from central banks.

"There is a glut of savings that investors are not sure where to go with. At the same time interest rates - through a massive central bank intervention - have been declining in developed countries since 1981," said Becker.

"This has led to the big driver for the populist backlash in the US and Europe has been the seeking of an alternative."

Populist

If the principles of this populist, Tea Party, Conservative movement gets introduced by the Federal Government in the US, Becker said he would be quite bullish about that market. Yet, it looks like Trump is not really implementing what he promised.

"If there is another big black swan crisis, what would Trump do?" asked Becker. "If Trump deregulates, the resultant strong US will be good for global economic growth, but it looks like he may be turning back despite there being a huge economic opportunity to bring balance back."

He added that the perception of risk could move from countries producing goods to those with more of a financial services approach. This could lead to a dramatic change in the perception of emerging market RISK, like SA.

In general, he expects a slowdown in the US and a push for greater fiscal stimulus with higher interest rates, but this could also be negative for the dollar, leading to emerging markets then performing better.

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