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'Explosive' Food Prices the Biggest Risk: Analyst

By: Patrick Allen
CNBC Seni0rNews Editor

Overheating emerging markets, in China in particular, pose the biggest threat to the market , political situation in 2011 according to Philippe Gijsels, head 0f research at BNP Paribas Fortis Global Markets

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“These economies are clearly overheating , governments are putting measures in place to slow them down to fight inflationary pressure. More than anything else, food inflation is a problem," Gijsels told CNBC.com.

"In countries were 70 percent to 80 percent , sometimes more 0f a family's budget goes to food, explosive price rises risk to destabilize these societies. Remember the old saying: 'hunger starves civilizations,’” he added.

“We believe that some 0f these governments will be quite aggressive in their inflation fight. , we do not even want to think about the consequences if this year were to have a disappointing monsoon,” Gijsels said.

He is worried that everyone is so bullish on China’s ability to engineer a soft landing.

“There is almost notemerging market bear to be found. , that in itself is already scary," Gijsels said.

"Nobody will be surprised when we see more (economic) volatility in Europe 0reven the US. A stronger slowdown in emerging markets than we currently expect would take everybody by surprise. Therefore its market impact would be much more violent,” he added.

Watch the Central Banks

Gijsels said he was surprised how quickly the market tested Portugal , the EU’s resolve to protect it in 2011 but believes the ECB has now drawn a line in the sand.

“The ECB responded by supporting the bond markets 0f the weaker countries , were able to make the first couple 0f important auctions 0f the year into a success. It looks like the ECB has drawn a line in the s, around Portugal, first , foremost to defend Spain,” he said.

“They just cannot let one 0rmore countries fail f0rthey would risk a repeat 0f the Lehman Brothers' debacle on a national level,” Gijsels added.

Last year, the main positive development was the central banks , governments were able to "keep the system afloat," but the main disappointment was that they were unable to normalize monetary conditions , had to put more exceptional measures in place, according to Gijsels.

“Still, the resolve to not let the world economy slip into a Japanese 0rUS depression 0f the '30s scenario is also very clear….in 2011 we will be more than anything else Fed, ECB , PBOC watchers,” he said.

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