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Will Emerging Markets Bubble Up?

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The following article from the economic times discusses the effect of the bubble on the emerging markets.

Will emergin markets bubble up?



"Interest in emerging markets has never been higher, with global

investors increasingly buying into the thesis that the forces of

“economic catch up” have been unleashed by globalisation in the

developing world and emerging market assets offer the maximum return

potential."... "But for how long will this party roll on? "

"Equally strong arguments can be made on whether the rally in emerging

markets has further to run or if a peak is imminent. Valuations in most

emerging markets are at the higher end of their recent trading range

but, in general, well below those levels that prevailed in 1994 and 2000

— the last major turning points in emerging market bull phases. "

While sentiment among the foreign investor community is too ebullient

for comfort, domestic participants in several emerging markets have

largely missed the current rally and remain sceptical of its longevity.


"Well, that could quite easily be stretched to include all emerging

markets. In fact, emerging markets outside of Asia have generated even

more spectacular returns, with markets from Brazil to Egypt up 200% to

1,000% over the past three years. "

Historically, the most important precondition for the formation of a

bubble in the second half of a decade is that the US economy remains in

an expansionary mode. Even with regard to the current cycle, it is

important to remember that while macroeconomic fundamentals in the

developing world have been improving consistently since the Asian and

Russian financial crises in 1997-98, emerging markets only started to

zip ahead from March 2003, when the US-led global economic recovery

began in earnest. Over the past two years, every time the ideal

Goldilocks scenario for the US economy has been threatened either by

fears of a Fed tightening — as in the second quarter of 2004 or an

economic slowdown — like in April-May this year — emerging markets have

faced selling pressure. To be sure, as those threats have receded,

emerging markets have come roaring back to hit new record highs. Still,

those stormy spells have been a reminder that the US economy’s path

remains a terribly important factor for emerging market performance.

"So, if the US economy does finally wilt under the burden of much talked

about financial imbalances, such as the housing bubble or the current

account deficit, emerging markets would struggle to generate any

positive returns. "


The writer seem to be confusing hsitory and reality.

Not sure if "the US-led global economic recovery" aka easy money policy started only in march 2003. is this not right after 9/11?



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