By Jorgelina do Rosario and Karin Strohecker
LONDON A decline in labour growth and expected fall in the working age population will be a drag on emerging economies already suffering from fading growth prospects, BlackRock's Global Head of Emerging Markets Amer Bisat told Reuters.
Global population growth over the past five decades fuelled a surge in labour and a rapid increase in gross domestic product in many emerging economies but Bisat said demographics were no longer a boon for the countries.
The changing demographics come against a backdrop of higher global interest rates and levels of debt which add to pressure on developing economies, with capital accumulation in emerging markets set to be "tough", said Bisat, who leads a team managing approximately $35 billion at the world's largest asset manager.
"Demographic used to be a tailwind in emerging markets. Now, it's a headwind," Bisat said in an interview during the launch of BlackRock's latest report he co-authored with director Karen Leiton on the outlook for emerging market investors.
"Labor growth in EM is already turning downward with the demographic dividend enjoyed by most EM countries running out of steam."
For instance, emerging economies were growing at an almost 8% pace at their peak before the financial crisis, but by the time the COVID-19 pandemic hit in early 2020 that growth rate had fallen to just over 3%.
"The deceleration was not concentrated in just one or two areas but cut across all EM regions," the report added.
Chinese economic growth also started to slow from double digits in 2010 to 5% more recently. "Our judgment is that over the next decade we are more likely to see a gradual (though slight) worsening in EM’s growth potential than to see a favorable reversal," the report said.
The golden age for emerging markets, which started at the turn of the century, had come to a swift end after the 2008 financial crisis, Bisat said. While the asset class remained "investable and interesting", the days of putting money to work in all emerging markets assets are over.
The strategy "isn't buying all Mexico or buying all Brazil anymore. It is about the good names in Mexico, the good names in Brazil. Quality can be found anywhere; we are going to use research to find it," said Bisat.
This meant his team was investing aggressively in AI tools to manage emerging market portfolios, he said, declining to provide any further details as its development was still at an "early stage."
Bisat also said BlackRock's emerging markets team was focused on building a research library, to include both better data and models on how to use and analyse it.
(Reporting by Jorgelina do Rosario and Karin Strohecker, editing by Emelia Sithole-Matarise)
