Emerging markets will lead the world out of recession — and they will continue to be the engines of economic growth in the years to come.

That is the view of Allan Conway, head of emerging market equities with investment giant Schroders, who says developing economies like China no longer rely on exports to the US and Europe for most of their growth.

Mr. Conway, who was in Bermuda to meet the local Schroders team, warned that the rise in stock markets around the world from their early March lows was "a bear market rally" and there was likely to be another pullback before a more sustained rise took place.

Mr. Conway manages six Schroders emerging markets funds, including its BRIC fund, which invests in Brazil, Russia, India and China. As of the end of March this year, he was responsible for around $10.8 billion of funds under management.

"Emerging markets have been responsible for about 50 to 60 percent of global growth in recent years," Mr. Conway said. "This year they'll account for more than 100 percent of growth.

"Emerging markets will be the engine of global growth for the next 10 to 15 years. They will be the drivers of the global economy."

He said the notion that developing countries needed a healthy western economy as an export market to achieve growth of their own was now outdated.

"Every emerging market we've seen before has been driven by strong exports, in particular to the developed world," Mr. Conway said. "China is going to be the first to go through strong growth driven by domestic demand.

"Even with the US in recession, China can bring in seven percent growth. We're not saying that it has completely 'decoupled'. But if you look at China and India, there are 2.5 billion people. Their savings rates, as a percentage of household debt, are higher than those in the US, so they have money to spend.

"These emerging markets are trading more with each other now. It's a fact that more emerging-markets exports now go to China than to the US. And emerging markets' trade with each other is greater than their trade with industrial countries."

Banks in emerging markets also tended to be more conservatively managed than in the west, and had been less leveraged, meaning they were less affected by the credit crisis, Mr. Conway said. Meanwhile, the US banking system would need three to five years to recover, he estimated.

He conceded that emerging economies' stock markets had fallen along with their western bourses during the global downturn, but pointed out that this was because financial market decoupling had not yet caught up with economic realities.

Western investors had pulled trillions of dollars out of global markets as they scrambled for cash during the credit crisis. They had sold off their profitable positions first — and after growth of around 150 percent over the previous 10 years, emerging markets had given investors profits to cash in.

Mr. Conway is not convinced that the positive trend in global markets since March will hold.

"We believe this is a bear market rally," he said. "There's been a lot of talk of green shoots, but the truth is things are continuing to deteriorate, they're just deteriorating less quickly.

"That's not what recoveries are made of. To see a true bull market, we need to see signs of recovery, not deterioration that is less quick." He expects to see a market pullback — a 10 to 20 percent drop would not surprise him — but after that he sees reason to be fully invested and would expect strong absolute and relative returns from emerging markets investments.

Schroders' emerging-markets funds place a high importance on diversification and its managers are encouraged not to hesitate admitting a mistake and getting out of a stock when it is clear that it's the right thing to do, Mr. Conway said.

"However good your managers are, there will always be pockets of under-performance," Mr. Conway said. "The best managers in the world are only going to be right about 60 percent of the time.

"If a stock is underperforming the market and they don't sell it, then we'll give them a hard time. At most other firms it's the other way round. Our philosophy is that 'if you're in a hole, stop digging'."

The aim of Schroders managers is to achieve the best return possible on the lowest possible risk — an approach which has earned the firm one of the best risk-return profiles in the business.