In this week’s edition of TFN Smart Investing with Krista Das, Mike Burnick of Market Shock Trader reveals the emerging market ecomonies that will be the driving force of global growth. The following was taken from the transcript.

Krista Das: Fears of a U.S. recession and slowing growth in other developed economies such as Europe have investors worried about a spillover effect in emerging markets. In other words, if the U.S. economy sneezes will China, Brazil and other emerging markets catch cold?

My next guest says all aboard, it’s time to hop on the new emerging market locomotive. Mike Burnick is a global market analyst for the Sovereign Society and the editor The Market Shock Trader.

So Mike, tell us what are the drivers behind global growth nowadays?

Mike Burnick: Well, Krista, for the first time in history last year, the emerging developed world actually took the lead in terms of global growth. As a matter of fact, the IMF, according to their own data, shows that China contributed about 35 percent – over one-third – of the total economic expansion last year in 2007. India actually kicked in another 11 percent.

As far as the U.S. and Europe are concerned, they’re no longer the leaders. I mean, the baton has definitely been passed. The U.S. and Europe only accounted for mid-single digits, about 7 percents each, of the total expansion we saw in 2007. So as I say, we’ve seen something of a changing in the guard, I think, and these emerging nations are really ready to stand on their own.

Krista Das: How is it that emerging markets like India, China and Brazil continue to grow at robust rates, even with the slowdown in the U.S. and Europe?

Mike Burnick: I think what we’re seeing here is a dynamic where these emerging markets have their own internal consumption is sort of taking over. Don’t get me wrong, China is still heavily dependent on the U.S. and on Europe for exports. As a matter of fact, about 40 percent of China’s total exports go to the U.S. and Europe.

So a recession in the U.S., as it looks like it appears what we have right now, and a slowdown in Europe, perhaps a sharp slowdown, is definitely going to affect China. There’s no doubt about that. However, there’s also a domestic driver that’s taking over and helping to lead these emerging markets. They’re actually trading more good and services among each other these days, more and more so than they are exporting to the major developed world in the U.S. and Europe.

So I think that there’s a great bit of evidence that we have seen this decoupling, as it’s called. There’s been a lot of debate about whether decoupling is a reality. That’s the ability of these merging markets to continue growing and keep growing strongly, even with the U.S. in recession. A lot of people doubt that that’s a reality. I think that there’s strong evidence though that that could really happen this time around.

Krista Das: Now, these emerging markets, they rely on a cash-heavy monetary system, and they have low lending rates as well. What do these economies rely on to continue robust growth?

Mike Burnick: Well, that’s a great question, Krista. I mean, no doubt, as I said, manufactured goods is a key component of China’s growth; same is true of India. In terms of some of the resource-rich economies – I’m talking about countries like Brazil, for instance, or Russia – it’s really natural resources, oil and gas and other commodities, that they export that really keeps their growth going. And in both cases, obviously, they’re dependent on exporting to the U.S., exporting to Europe and other developed nations.

But as I mentioned before, there’s a lot of internal dynamics going on now where they’re actually shipping more goods and services between the emerging market countries. The emerging markets, in general, account for about 80 percent of the world’s total population, and this is a very upwardly mobile component of the population.

The growing middle classes in China and in India and in these other countries are demanding more goods and services. They’re demanding a higher standard of living. So we’re seeing consumption actually take over in these emerging countries, much more so, accounting for a bigger part of global GDP growth. As a matter of fact, about 40 percent of GDP growth in these emerging markets is just because of consumer spending at home. That’s the kind of home-grown dynamic that’s not going to be affected by a credit crunch in the U.S.

Krista Das: Now, a slowdown in the U.S. and Europe in 2008 would certainly be a drag on emerging-market economies. Give us the good news. Is it safe to bet on these emerging markets and invest in them?

Mike Burnick: Well, yes, a slowdown in the U.S., a recession like it appears we’re in right now, and obviously a slowdown in Europe, would definitely affect the emerging markets. Though don’t get me wrong, we’d probably see some spillover affect.

However, as I mentioned, the internal growth in these countries is going to be more than enough, I think, to pick up the slack quite a bit. As a matter of fact, if you look at China, for instance, as kind of the poster child, if you will, for emerging markets, in China right now, about one-fourth, 25 percent, of the total GDP growth is just internal, home-grown consumer spending. It’s becoming a bigger driver of their economy. That’s up from virtually nothing just 10 or 15 years ago.

In the U.S., of course, consumption accounts for the lion’s share, about 70 to 75 percent of the U.S. economy. So China still has a long way to go, but it’s a very fast-growing dynamic. They’re not as heavily dependent on what we do here in the United States or what goes on in Europe in terms of export growth. They have a very, very strong and very fast growing; I would point out, internal growth going on in terms of consumption. And that’s going to bring them through this, I think, in much better shape than the U.S. is going to be in.

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