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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: ScatterShot who wrote (51352)	6/15/2009 8:51:22 AM
From: dvdw©	Read Replies (1) \| Respond to of 219862

a little something for everyone can be gotten here. physics.aps.org

To: ScatterShot who wrote (51352)	6/17/2009 8:14:06 AM
From: elmatador	Respond to of 219862

The theory of decoupling – the idea that emerging markets can grow in spite of a downturn in the developed world – has been revived after their dramatic resurgence this year. Decoupling gains new group of cheerleaders By David Oakley Published: June 11 2009 20:15 \| Last updated: June 11 2009 20:15 The theory of decoupling – the idea that emerging markets can grow in spite of a downturn in the developed world – has been revived after their dramatic resurgence this year. Decoupling was completely dismissed by most analysts following the collapse in markets everywhere after the bankruptcy of Lehman Brothers in September. Yet decoupling – which was so popular as an idea at the end of 2007 and early 2008, as many of the emerging markets continued to rally in spite of the credit crisis – is gaining traction once again. The main cheerleader is Jim O’Neill, chief economist of Goldman Sachs and the inventor of the Bric acronymn for the world’s four biggest emerging markets of Brazil, Russia, India and China in 2001. Mr O’Neill says there is “considerable decoupling going on” as investors switch to emerging market assets as they reckon many of these economies can grow more strongly than the developed world. He thinks China, in particular, can lead the world out of its slump – as it relies increasingly on domestic demand rather than on exports in order to grow. EDITOR’S CHOICE Emerging market equities outperform west - Jun-07.Short View: Decoupling retold - Jun-03.Long view: China’s health gives rise to fresh growth theory - Jun-05..Tim Bond, head of asset allocation strategy at Barclays Capital, agrees: “China certainly has the capacity for independent growth. There is no such thing as a complete decoupling in the age of globalisation – but the emerging nations are much less coupled than they were.” China is a big driver of the current upturn. Its vast stimulus package announced on November 10 sparked the rally in the emerging markets, supporting the view it is leading the way out of the slowdown rather than the US, the traditional driver of the world’s economy. Nigel Rendell, senior strategist at RBC Capital Markets, says: “China has a big psychological effect on emerging markets in general. The fact that China will still register substantial positive growth this year – helped by large-scale government spending – is important.” Optimism about Chinese growth has led directly to a revival in commodities markets. Dalinc Ariburnu, global head of emerging markets at Deutsche Bank, says: “There is no question that emerging markets are benefiting disproportionately from the surge in commodities, given that earnings of commodity firms account for close to 50 per cent of overall earnings in the emerging market economies.” Emerging equity funds have seen inflows of $10.5bn since the Chinese stimulus package, according to EPFR Global, the data provider. That compares with an outflow of $46.73bn in developed equity funds. Significantly, the emerging market rally started four months before the developed markets began to pick up in early March. Since November 10, the FTSE All World Emerging index has risen 37.2 per cent compared with a 5.5 per cent rise in the FTSE All World Developed index. Since March 1, the emerging markets have continued to outperform, rising 61 per cent compared with the developed world’s increase of 32.1 per cent. Other emerging assets have also performed strongly. The emerging market sovereign bond index, the Embi+, has seen its spreads contract to 407 basis points over US Treasuries from a high of 862bp on October 24. EM currencies have also scored well. Of the main floating currencies, the South African rand has surged 25.3 per cent against the dollar since November 10, the Brazilian real has risen 11.4 per cent, while the Indonesian rupiah has jumped 10.2 per cent. Setting aside China and India, the outlook for many other emerging markets is mixed. The notable laggards are central and eastern Europe, where many countries relied too heavily on external debt. Hungary, Latvia and Ukraine have all been forced to turn to the International Monetary Fund for financial support in a clear sign they have not decoupled from the west. Latvia is the most immediate concern, with a failed debt auction leading to worries of an imminent currency devaluation. Other regions have fared better. Many Asian and Latin American economies have continued to grow, although they too have their laggards, such as Argentina and Ecuador. Of the Brics – Brazil, Russia, India and China – Russia’s economy is in a mess. Some economists forecast it will contract by about 6 per cent this year. Without the rise in the oil price, which has soared to more than $70 a barrel from slightly more than $30 in February, the Russian economy would be in even worse shape. The important argument against decoupling relates to the reliance of the emerging markets on exports. Philip Poole, global head of emerging markets research at HSBC, says: “No emerging market economy that adopted an export-led growth model has subsequently managed to break away from it – including China.” China’s exports as a percentage of gross domestic product are 32.5 per cent compared with only 13 per cent in the US. China also relies heavily on the US, which buys 19 per cent of its exports. Some smaller Asian nations are even more dependent on exports. Singapore’s ratio of exports to GDP is 234 per cent; Hong Kong’s is 169 per cent. Michael Hartnett, chief global equity strategist at Bank of America Merrill Lynch, says trading links are the most compelling evidence against decoupling. “What is going on in the world economy is influenced by the US consumer.” He argues the correlation between emerging and developed markets backs up his assertion. Since January 2002, the FTSE All World Emerging index has moved in the same direction as the FTSE All World Developed index on 75 months out of 89 – a correlation of 84 per cent. “This number” – he says – “speaks for itself. The markets broadly went up together and broadly came down together. “Decoupling is a myth.” .Copyright The Financial Times Limited 2009