The emerging markets’ growth, particularly in China and India, will be critical to the recovery of the developed world’s balance sheets, according to a recent outlook report by Sarasin Group, a leading Swiss private bank.

With some positive economic data emerging, investors are now concerned by the hangover created by unprecedented economic stimulus, said authors Burkhard Varnholt, chief investment officer, and Guy Monson, chairman of the Investment Policy Committee, in the bank’s latest strategy outlook.

'Given slower global economic growth and heavy reliance on domestic demand in the Emerging World, Sarasin believes central banks will be extremely cautious with regard to withdrawing today’s super-accommodative stance, known as Quantitative Easing,' the duo said.

In mid-June, bulls found some data to cheer about. While the World Bank predicted that China’s economy will grow by 7.2 per cent this year, in June Germany’s ZEW economic expectation index jumped to its highest level since mid-2006, and, in the same month, the much-watched Philadelphia business index rose to its highest level since September 2008.

This suggests a summer rebound in the US and UK economies, and an inventory-led rise in industrial production across the G7.

'Investors are nervous about the fragility of the economic recovery.  They are suffering vertigo from the recent surge in stock market valuations and are rightly concerned about the cost of the cure for the global financial crisis,' said Monson.

'But there is positive news, with recoveries in the US and the UK in sight,” he added.

Varnholt observed, 'We used to say that a good central banker would remove the punch bowl just as the party was getting going.  But now we believe the central bankers need to keep the punch bowl full to make sure the party doesn’t stop.'

'An increase in money supply to offset falling industrial production will drive an increase in some assets and markets,' he added.-TradeArabia News Service