Tags: soros | economy | euro | crisis

Soros: World Financial System on Brink of Collapse

Thursday, 01 Dec 2011 08:55 PM

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The world financial system is on the brink of collapse, with developed markets running full speed ahead toward disintegration, says billionaire financier George Soros.

Although developing countries are battling a slew of problems themselves, such as corruption and tattered infrastructure, they will likely end up faring better than markets in the big, industrialized nations, Soros says.

Developing countries are unscathed by the "deflationary debt trap that the developed world is falling into," Soros told a New York gathering at the International Senior Lawyers Project, a group that provides pro bono legal services, according to The Wall Street Journal.

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While the global financial system finds itself sliding down a slope of a "self-reinforcing process of disintegration," investors must brace for the worst because "the consequences could be quite disastrous. You have to do what you can to stop it developing in that direction," Soros adds.

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George Soros
(Getty Images photo)
Emerging markets in Africa and in the Arab world, however, serve as bright spots in an otherwise dim global economy.

"A lot of positive things are happening," Soros says.

"I see Africa together with the Arab Spring as areas of progress. The Arab Spring was a revolutionary development."

Other experts agree that money will resume flowing into emerging markets, bonds especially, once investors who bolted for the sidelines amid the European debt crisis grow some appetite for risk.

The value of emerging-market debt in the second quarter of this year totaled $163 billion, says Renaissance Capital's global chief economist Charles Robertson, according to CNBC.

While smaller than the $212 billion peak in the third quarter of 2008, the number is high enough to merit attention.

"Nearly $100 billion a quarter going to emerging markets, over the last 12 months. I think that can only continue," Renaissance Capital's global chief economist Charles Robertson tells CNBC.

"By 2013, it would be no surprise to us if lending to EMs hit record highs."

Asia and Africa will figure big, Robertson adds.

"If you want yield or growth, it has to be Africa first, but Asia's going to be up there as well. If you're looking for liquidity, Asia again is going to be interesting. So, I would argue that the portfolio money is going to still be flowing into emerging markets, and flowing into these high-yielding stories."

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