the last week or so, the last couple of weeks, actually, emerging markets have been trading better.
Is there any evidence to conclude that the emerging market weakness has bottomed, in your view?
WEBER: I think there were — there was, again, an exaggeration. So the first victims of the U.S. discussion about tapering and tightening monetary policy was the direct fallout in emerging markets, because people felt there was a parallel to the ’97 Asian financial crisis or the emerging market crisis.
But the emerging markets have really moved on from there. They now use flexible exchange rates a lot more to isolate themselves from international shocks. The banking system is much better capitalized, much more stable. There’s muss — much less currency mismatch in lending and borrowing, uh, so banks are actually borrowing internationally but a lot of the borrowing also comp — occurs domestically.
So the whole situation in emerging markets is, in my view, not as fragile as markets initially feared.
But the whole — the top issue that I see for the world economy is the world is normalizing. And the world is normalizing because the U.S. is normalizing. The U.S. has been a weak economy with a deep financial crisis at the heart of our financial system, at Wall Street.
We’re now coming out of that. U.S. banks are — are better. They’re better capitalized. The U.S. is growing again at a pace that is faster than most other industrial countries.
And so the world is normalizing. Part of that normalization is that emerging markets’ growth is normalizing, too, because the U.S. is doing better, capital is flowing back to the U.S., and financial markets in emerging markets have to pay a higher price for what is usually a more volatile environment.
And a lot of people are forgetting that in this normalization process, we used to have emerging markets equated with higher volatility.
BARTIROMO: Yes.
WEBER: So the volatility we’re seeing now is just a reemergence of the type of volatility you would expect in a set of markets that are more fragile.
And I don’t think that that is something to worry about. Actually, I take it as a sign that the world is moving back to a more normal modus operandi.
BARTIROMO: Axel, did I miss anything that you’d like to add?
WEBER: I think you covered everything.
BARTIROMO: Axel Weber, great insights from you, as usual.
Thank you so much for joining us today.
WEBER: Thank you for having me.
BARTIROMO: Axel Weber is the chairman of UBS and a former president of the Bundesbank.
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