Overheating emerging markets could be the biggest political threat in 2011

Emerging Markets are headed for a rough landing if inflation starts to pickup in these countries with no corresponding increase in wages.  Even in rural China, the vast majority live on peanuts and a majority of their income goes toward food.  China has already has some problem in the countryside with violence and riots, of course, you won't hear than on their state run monopoly news sources. 

We have said earlier, that China is heading toward dangerous bubble territory, as is likely Brazil.  Of course, optimism in these two countries has never been higher.  That is why it is so dangerous.  Via CNBC:

Overheating emerging markets, in China in particular, pose the biggest threat to the market and political situation in 2011 according to Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

“These economies are clearly overheating and governments are putting measures in place to slow them down to fight inflationary pressure. More than anything else, food inflation is a problem," Gijsels told CNBC.com.

"In countries were 70 percent to 80 percent and sometimes more of a family's budget goes to food, explosive price rises risk to destabilize these societies. Remember the old saying: 'hunger starves civilizations,’” he added.

“We believe that some of these governments will be quite aggressive in their inflation fight. And we do not even want to think about the consequences if this year were to have a disappointing monsoon,” Gijsels said.


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