Deutsche says credit turmoil has helped emerging markets

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"Overall, the shocks in the mature economies' markets have at least until now led to a relative re-pricing of risk, favouring some countries and sectors, especially emerging markets," Josef Ackermann said in a speech prepared for a meeting of CEOs organised by the Washington-based Institute of International Finance (IIF) in Dubai.

Strong commodity prices and growing domestic investment were supporting emerging markets, helping limit the global effects of the sub-prime crisis, he said.

"Unlike many previous crises, the shocks experienced in Western markets have not cascaded down through the global credit, foreign exchange and money markets, although we have seen some significant corrections in the equity markets," he said.

Despite the subprime crisis - the credit turmoil stemming from defaults in the U.S. market for risky mortgages - net private capital flows to emerging markets grew by about 20 percent to a record $680 billion (346 billion pounds) in 2007, he said, citing IIF figures.

Economic and financial dislocations caused by the U.S. housing sector decline had been severe, but official bodies had acted with "boldness and clarity" to stem the damage, he said.

Central banks since last August have pumped many billions of dollars of cash into money markets to grease the wheels of the financial system, which threatened to seize up when complex credit derivatives lost value.

"These measures have effectively addressed the liquidity problems that have plagued mature money markets," Ackermann said, citing measures taken by the U.S. Federal Reserve, European Central Bank, the Bank of England, the Bank of Canada, and the Swiss National Bank."

Greater transparency, more realistic valuation of complex financial products, and better risk management could help restore confidence and boost market efficiency, he also said.

"Every firm has to create complete clarity for itself, the market and the relevant regulatory authorities, with regard to exposure," he said. "Every market participant has to be clear about its contingent liabilities."