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The DM savings glut
The Emerging View
01 November 2017
In 2005 Former Fed Chairman Ben Bernanke argued that a savings glut in EM explained the US current account deficit. He also argued that savings gluts reflect a poor domestic investment environment relative to opportunities elsewhere in the global economy. We have updated Bernanke’s data. Today, the EM savings glut has disappeared and the US still runs a current account deficit. This suggests that Bernanke’s explanation for the US current account deficit was inadequate. More importantly, the fact that an ever larger savings glut has now emerged in developed countries bodes poorly for investment returns in developed markets and suggests further upside for EM assets in the years ahead.