Global bond and equity investors are no longer relying on the United States to power world economic growth, said presenters at a Natixis Global Asset Management press luncheon.

Market observers used to see the developing world as a supplier of cheap raw materials and cheap labor. But investors are slowly accepting the notion that emerging-market countries are full of consumers. They have come so far that observers are now using the term frontier markets to describe burgeoning economies.

"Personally, I think we are witnessing history," said Francisco Alzuru at Hansberger Global Investments, where he is the lead portfolio manager of the Latin America fund and managing director of emerging markets research.

"We are living through the passing of the baton from the developed world to the developing world in terms of consumption," Alzuru said at the Natixis luncheon, which took place in late September.

Fund managers are now paying keen attention to Chinese domestic economic policy and the bond market rally in Brazil.

China, India and smaller Asian countries could produce about 1 billion potential consumers in the coming years, according to Alzuru.

In China, for instance, the source of economic productivity is increasingly mixed. Exports account for half its activity, while household consumption and capital from Asia drive much of the rest.

Moreover, the Chinese government is trying to avert any major outbreaks of social instability. In doing so it is backing new housing, rail lines, telecommunications networks and ports, Alzuru said.

If there is one concern about the Chinese economy, it is whether the country's banks can effectively service loans to local governments for infrastructure projects.

In this sector, said Alzuru, his fund is actually underweight on Chinese banks. The fund has more exposure to Brazilian banks, because those lenders actually have higher return-on-equity rates than Chinese institutions.

Indeed, Brazil continues to stand tall in the emerging-market crowd, according to Alzuru. The unemployment rate is the lowest it has ever been, and future unemployment is a relatively minor risk.

Brazil is also showing strong signs of economic stability, as it prepares to elect a new president to succeed Luiz Inacio Lula da Silva. In contrast to what the capital markets have witnessed in the past, the domestic bond market is rallying.

If the front-runner, Dilma Rousseff, can win credibility from the Brazilian corporate sector, as da Silva has done, then the credit markets there will continue to be rational, Alzuru said.

The combined consumption rates of the emerging-market economies surpassed consumption in the United States in 2009, Alzuru said. In particular, there is potential for a massive middle class in China.

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